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Presumably that wouldn't be the case for any innovative companies, though. There might not be Richard Bransons storming into existing markets and dominating the

Presumably that wouldn't be the case for any innovative companies, though. There might not be Richard Bransons storming into existing markets and dominating them, but there would still be Microsofts and Googles.

littlestymaar 2y ago
Why would anyone finance an innovative company if financing companies yourself was always less profitable in the longer term than passively investing (which is what efficient market hypothesis is about)? In fact if the EMH was true, then all hope for financing innovative companies would come from delusional investors making the sub-optimal choice of investing there. How “efficient”.
- robertlagrant 2y ago
  But the market only has access to public companies. It wouldn't know about anything non-public, would it? And when a company went public, in a perfectly efficient market all the share prices would instantly rebalance to take that new company into account.
  - littlestymaar 2y ago
    > It wouldn't know about anything non-public, would it? Why? Then how would be all your stealth companies supposed to raise enough money in the first place? Or attract customers? In practice most companies are publicly known as early as series A at least and remaining unnoticed for longer requires lots of effort that would definitely hamper the growth of such companies. And the market definitely takes rising competitors, even private, into account when assessing the financial prospect of existing public companies.
    - robertlagrant 2y ago
      Non-public companies don't advertise investment opportunities uniformly to the entire market of investors the way a public company does.
      - littlestymaar 2y ago
        EMH is about markets factoring in all available information, not just “uniformly advertised investment opportunities”.
        robertlagrant 2y ago
        But not all information is available to the whole market. Otherwise fully private startups would also fall under it, as, well, the employees know the information, so it's technically "available". That definition of EMH seems to be what's causing this idea that innovation in new companies is impossible, rather than the general idea that asset prices reflect available information. Some information is not available, and that won't be reflected in prices. That's all.
aqme28 2y ago
You're assuming that startups are more innovative than large companies, but this is only true because the market is not efficient. An "efficient" enterprise would perfectly invest in innovation.
- princeb 2y ago
  ??????? emh doesn't mean everyone knows everything, it means the price accurately reflects available information. if an innovation was believed to be world changing, it would be worth a lot, if the belief changes, the price changes.
  - TheOtherHobbes 2y ago
    "Belief" being the key word. The economy is a faith-based construct. Prices aren't set by "information", but by faith in value - which is one of the easiest things in the world to lie about.
    - robertlagrant 2y ago
      This isn't related. You're zooming way out to "how do we know anything, man?" This is far more specific a topic than that.
  - creer 2y ago
    And there is one problem: "belief". Some people can walk through Xerox PARC and bet their company on 3-4 things they see. Others can own Xerox PARC and bet their company on 3-4 largely different things. In EMH there is cooked in some notion of overall largely rational beliefs, and yet the shares trade hands from someone selling to someone buying - both of which feel they got a good deal worth making money from.
    - princeb 2y ago
      i mean, if you want to go all epistemological, sure, let me rephrase. each of us individual humans live in a specific world mapped on what we believe we know and our lived experience, and there is (at least) one unique world for each individual human. the price is a representative agent of a subset of the worlds that exist within the minds of the participants of the economy. as the mappings of reality upon the beliefs and experiences of the individual participants change, the price changes.

littlestymaar 2y ago

Why would anyone finance an innovative company if financing companies yourself was always less profitable in the longer term than passively investing (which is what efficient market hypothesis is about)? In fact if the EMH was true, then all hope for financing innovative companies would come from delusional investors making the sub-optimal choice of investing there. How “efficient”.

robertlagrant 2y ago
But the market only has access to public companies. It wouldn't know about anything non-public, would it? And when a company went public, in a perfectly efficient market all the share prices would instantly rebalance to take that new company into account.
- littlestymaar 2y ago
  > It wouldn't know about anything non-public, would it? Why? Then how would be all your stealth companies supposed to raise enough money in the first place? Or attract customers? In practice most companies are publicly known as early as series A at least and remaining unnoticed for longer requires lots of effort that would definitely hamper the growth of such companies. And the market definitely takes rising competitors, even private, into account when assessing the financial prospect of existing public companies.
  - robertlagrant 2y ago
    Non-public companies don't advertise investment opportunities uniformly to the entire market of investors the way a public company does.
    - littlestymaar 2y ago
      EMH is about markets factoring in all available information, not just “uniformly advertised investment opportunities”.
      - robertlagrant 2y ago
        But not all information is available to the whole market. Otherwise fully private startups would also fall under it, as, well, the employees know the information, so it's technically "available". That definition of EMH seems to be what's causing this idea that innovation in new companies is impossible, rather than the general idea that asset prices reflect available information. Some information is not available, and that won't be reflected in prices. That's all.

aqme28 2y ago

You're assuming that startups are more innovative than large companies, but this is only true because the market is not efficient. An "efficient" enterprise would perfectly invest in innovation.

princeb 2y ago
??????? emh doesn't mean everyone knows everything, it means the price accurately reflects available information. if an innovation was believed to be world changing, it would be worth a lot, if the belief changes, the price changes.
- TheOtherHobbes 2y ago
  "Belief" being the key word. The economy is a faith-based construct. Prices aren't set by "information", but by faith in value - which is one of the easiest things in the world to lie about.
  - robertlagrant 2y ago
    This isn't related. You're zooming way out to "how do we know anything, man?" This is far more specific a topic than that.
- creer 2y ago
  And there is one problem: "belief". Some people can walk through Xerox PARC and bet their company on 3-4 things they see. Others can own Xerox PARC and bet their company on 3-4 largely different things. In EMH there is cooked in some notion of overall largely rational beliefs, and yet the shares trade hands from someone selling to someone buying - both of which feel they got a good deal worth making money from.
  - princeb 2y ago
    i mean, if you want to go all epistemological, sure, let me rephrase. each of us individual humans live in a specific world mapped on what we believe we know and our lived experience, and there is (at least) one unique world for each individual human. the price is a representative agent of a subset of the worlds that exist within the minds of the participants of the economy. as the mappings of reality upon the beliefs and experiences of the individual participants change, the price changes.