>>however, I would like to defend the market's action in the CFO resignation and poor quarterly reports you discussed in your last post. The market {properly} recognizes these events as potential upsets in it's control algorithm. Because the market is future based it was compelled to take predictive action based on its experience.
I'm not sure we disagree at all about this. I implied the market is better than any human at noting and interpreting the effects of millions of seemingly unrelated inputs, that are immediately reflected in changes in price and volume. Since CFO changes are frequently associated with subsequent poor company performance, and INTS seems to have problems, and interest rates are going up or down or whatever, all this information and more gets constantly interpreted by thousands, even millions, of individual and institutional investors, who in turn express themselves by their action in the market. (Most of whom don't take any action at all.) If a large number decide to buy or sell, this back-propagates through the market further altering or damping out prior effects. The combination of millions of information inputs, activators producing buy/sell orders, and back-propagation for self-correction, sure looks to me like the market has all the characteristics of an adaptive neural network.
Even though the market's prediction about CFO may be the best available, it still doesn't make it right every time. Neural Nets are only so good. Sometimes astute observers are better equipped than a Neural Net to interpret some types of events. This might happen when the implications of a strong impulse is convoluted but logically discernible by the astute observer.
You were correct when you said the market looks to the future. It does it because all the actuators (people) are guessing about the future.
I agree that the CFO instance does not provide proof of market inefficiency (we still don't know the answer in either the INTS or the MWAR situations.) What did provide proof, however, was when the market took down WIND and MWARS in sympathy with INTS after reporting disappointing earnings.
And here we go again. The market clearly is anxious about MWARS upcoming earnings (taking over 2 points off today) after the CFO announcement and lingering concerns about INTS. Now that the market is concerned about two out of three of these companies, it is re-establishing concern for WIND (also taking off a couple of points, but a lessor percentage reduction). That's what any neural net worth its salt would do. But it is wrong.
>>Why not consider the Market's error in classifying Motorola as a high-tech GROWTH stock?
Be careful. Motorola is a long-time favorite of Phil Fisher, an important mentor of Warren Buffett. While everyone knows Benjamin Graham taught Buffett value investing, it is also true that Fisher taught him skills that probably served him best. If Fisher, who is still actively investing, likes Motorola, the market is quite likely to classify it as a high-tech growth stock.
On another subject, Mark Murphy just reviewed the embedded systems sector in the California Technology Stock Letter, identifying WIND as the market leader. I plan to comment more on his review after checking out a couple of details.
Allen |
