STREET DOGS: How markets are great information aggregators
The stock market is one of the world’s great aggregators of information. Scholars have been documenting its remarkable ability to sniff out and assess information about companies. Studies show market prices react to news with staggering quickness and tend to see through accounting conventions and subterfuges to the real economic value of a company’s earnings. So when a CEO argues investors are failing to give his company adequate credit it’s a safe bet the market is right and the CEO and his accountants are blowing smoke. While public stock markets are often assailed for short-termism and impatience, there is ample statistical evidence that stock prices, especially for companies in the early stages of growth, factor in potential earnings decades down the road. But there’s also evidence that investors’ willingness to look into the future is on the decline. And stock markets have never been infallible in their assessment of companies’ prospects. Financial markets need imperfection — "...
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