I was going to write about valuation this week but the events of last week caught my attention.
Oh the irony!
In the story “The Emperor’s New Clothes”, the only person to challenge the Emperor and point out that his new fashionable outfit was nakedness, was a little boy on the side of the street.
Not that Professor Shiller of Yale University is a hapless little boy.
The irony here is that both the Emperor and the little boy were awarded the Nobel (and are having to share it!).
The buffoons here are the Nobel committee (I know..there are no Nobel prizes for economics…but its close enough).
If you are so afraid to offend (alternatively if you are too simple minded to realize that these economists disagree on fundamental issues…fundamental issues) that you take the path of awarding them BOTH the prize (helped us understand how markets work…rubbish!), the only analogy this doctor can think of would be to award both creationists and evolutionary biologists the Nobel prize in Biology together “for clarifying the origins of man!”
I gag at the thought.
Eugene Fama believes the markets are efficient.
If you question him closely, he coyly adds/edits that he believes they are “informationally” efficient.
In other words, if you invoke human psychology (as Shiller does), Fama will tell you he is thinking about the dissemination of information being efficient.
The fact that informational efficiency in and of itself is a completely useless factoid is left unsaid.
Its the market’s actions that mean something.
I give a hill of beans that all of us have access to the same stupid analysts report.
It matters how you process that information and what you decide to do with it.
It matters whether it encourages the fear in you or the greed in you.
That’s what I want to know.
There is a silver lining here though for all of us who want to live in the real world (Fama has also said..there are no such things as financial bubbles..oy vey!).
The fixed false belief in efficient markets (in psychiatry, a fixed false belief is the definition of delusion..a belief that is unchanged in the face of contradictory evidence) has created substantial inefficiencies in the market.
The more people behave as if the markets are efficient, the more there are value anomalies that a savvy investor can exploit.
As Buffet said and I paraphrase ” If the competition goes to work every day thinking its useless to even try (to beat the market), it makes my job easier!”
I can hear Buffet and Munger as they fall off their chairs laughing at this turn of events.
Short term price movements, the kind likely to be impacted by Fama’s theory are irrelevant or should be irrelevant to all investors. I plan to discuss the (non) impact of short term price movements in a future post.
In the meantime, I hope and pray(!) that the creationists are not in line for a Nobel prize as well.
Are you listening Nobel Committee?