A TROUBLING SCENARIO THATWILL INFECT THE MARKETS THIS YEAR
The initial public offering (“IPO”) of Lyft shares in March is only the beginning...
The financial press drowned the public in the news. I’m sure you saw at least one headline about it. Despite never having sniffed profitability, the ride-scheduling firm still commanded a market valuation of more than $22 billion at its IPO on March 29. For many of us, nothing about the Lyft IPO really made sense. It’s troubling, but also predictable...
Deep down, most investors want to believe the stock market makes sense. They want to believe it’s fair... that it works. They want to believe that most stocks are more or less valued properly, based on publicly available information. If you cling to that belief, then three enormous IPOs this year will test your faith. Wall Street is about to cram some horribly run, cash-burning businesses down the throats of millions of unwitting American savers... an interesting test of what academics call the “efficient market theory” (“EMT”).
Generations of academics have written about the “efficient market”... This is the belief that the universe of investors automatically (and accurately) synthesizes all known information about a company, so its stock price always reflects its real value. As a result, individuals have no shot at beating the market. The only sensible thing to do is simply put all your investing capital into a big index fund and leave it there.
By Bryan Beach
s
American Consequences
33
Made with FlippingBook Learn more on our blog