The Efficient Markets Hypothesis says that there is no point in picking stocks. There are a few justifications, but this is the simplest one: if you are buying a stock, somebody is selling a stock. At the very same time you think it is going to go up, they think it is going to come down.
So the EMH asks: what makes you so smart?
This weekend led me to consider the EMH in some detail. For the second time in my life, I made an investment. I bought a NASDAQ index and a TSX index. Doing so, I cut out the charges that mutual funds demand, and I bet that stocks, in general, would go up. Of course, I did so knowing full well that stocks, in general, are coming down, and that this week has made many other smart people panic. I don’t think I’m smarter. I’m just in it for the long run.
I also read an article by Noreen Rasbach in The Globe and Mail–Canada’s best newspaper. She said–in the business section, in a column on investing–that she was going to buy Apple stocks. She was going to because
“… the more the price falls, the more I think it looks like a bargain again. I have an affinity with Apple, and I believe it is in the forefront of technological innovation. The company is a master at creating demand by constantly overhauling and improving its product lines, making them easier to use and more stylish. That makes people like me really, really want an iPod Touch, less than a year after shelling out more than $500 for a Video iPod. Or covet the new MacBook Air the moment it was launched this week, even though I bought a MacBook less than six months ago.”
Rasbach is going to buy AAPL because she likes what they make. Not because of price-to-earnings, dividends, or good corporate governance. No, she’ll buy it because the new MacBook Air is sexy.
AAPL is a “bargain” she says. This is madness. She can have no idea. She thinks the stock is a bargain because the computers are cute. I cannot reconcile these two completely disparate propositions. She can. She will bet her money that she can.
I love Apple products. I write this from a MacBook, my dearest possession. But Rasbach proves that there is simply no way to predict the movements of Apple’s stocks–any halfwit can buy them, and many halfwits do, for the flimsiest of reasons. Halfwits and bird brains follow an indiscernible leader with unfathomable motivations.
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