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Why would anyone finance an innovative company if financing companies yourself was always less profitable in the longer term than passively investing (which is

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.

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.