All of this has already happened. Just look at the stocks of all the pandemic companies. Peleton, Teledoc, Zoom, Docusign and on and on. Pretty much all down 80%+ from their highs.
If anyone had any notion that the markets were efficient or rational in any way regarding the actual underlying value of the companies they purport to represent, I certainly hope that notion didn’t survive the pandemic - I’m not sure what world stocks were pricing in over the last two years, but it didn’t pass even a cursory smell test.
Nikola, a vaporware company with absolutely 0 revenues burning $600m / year, is still "worth" $3b.
HKD, a vaporware company, is being pump and dumped and is now "worth" $150b+, the size of Bank of America, despite being 50 employees with nothing of value.
The only way I can understand the Efficient Markets Hypothesis is as a way for academic economists to explain why they personally have not gotten rich trading stocks.
I assume you mean they don’t put much stock in the strong EMH - Which is true, but the concept is the underpinning of most risk-weighted investing and some form of it (eg weak or semi-strong EMH) lines up nicely with why index funds outperform on a very broad basis.
I’m trying to think of a good analogy to CS.. maybe “Good engineers don’t put much stock in artificial intelligence”
It's a really approachable theory and contrary to what you'll read in tech message boards - doesn't remotely boil down to "the market can't be wrong". Burton Malkiel (economist most famous for writing "A Random Walk Down Wall St" and being a longtime advisor of Vanguard) has a paper talking about the early 2000's pushback.
It gives a good summation / spells out some critiques / offers his reasons for disagreeing:
the market is the most efficient place you can put your money, and the companies that underlie the market are the greatest stores of value with the best growth opportunities we know of, and the pandemic didn't change that.
Dying to hear where else you suggest putting investments...?
If one believes the current market is bogus, then it is quite possible to move money into hard/sticky assets. Real estate is the prime example of this, as it’s in everyone’s interest that real estate not crash too hard. Similarly bonds
Big question to ask if you are betting the market is bogus is whether the market will stay bogus while your “safe” asset stays flat.
Yes, the market is very efficient at losing money as well by punishing foolish people that believe the market is only efficient at making money. Buy, buy, buy!
If anything, the current situation is a demonstration of the opposite. The claim that markets are efficient and rational is based on long term price finding. This includes a lot of noise. If Peleton never makes a profit, the market will eventually find the correct price.
Would you say the same about working from home generally, which seems to have more staying power (even if we are seeing some return to office)?
It seems not-crazy to me that someone would have thought that WFH was going to stick around post-COVID and thus also make people want to keep being able to work out from home.
first and foremost, working out at home has always been available. If you prefer working out at home you were probably already doing it.
Second, a lot of people enjoy a social aspect of gyms, or even just find it motivating to be around other people working out even if you don’t talk to them.
You only have to spend a little time around fitness oriented folks to know workout at home was never going to stick
I worked in a consumer goods VC during this time and we couldn’t believe anyone was touching these companies, most were just instagram-aesthetic branding on cheap machines
as a bodybuilder for 20 years, i completely agree with you. working out at home has never had the same appeal to me or anyone else i knew who worked out as going to a gym. i got a peloton during covid isolation and it simply wasn't the same. i went to the gym the first day it opened and so did every other regular. i knew peloton wasn't going to continue thriving, however i do have to say they have very quality equipment so they'll probably continue to do okay.
you can’t really short private companies as a normal person and even if you could you would never outlast the money VCs are willing to pump in to prop it up until they find the greater fool buyers
Your best bet is just to stay away when something smells
