So much for the efficient market theory?

I’ve always been a fan of the efficient market theory for Wall Street, the argument that a company’s stock price at any given time accurately reflects all relevant information concerning that company. My faith suffered a jolt yesterday, though, when GPS manufacturer Garmin lost 18% of its value and Tom Tom 21% on news that Google had come out with a free map/driving application for cellphones.

Why? Because I’m a pretty clueless guy who doesn’t own stocks and therefore doesn’t follow any particular company’s prospect except from a general sense of curiosity, yet two months go I wrote abut Google’s progress in this direction and predicted the demise of Garmin and its competitor,Tom Tom. My point is, if idle curiosity could produce such a prediction then, shouldn’t the market analysts who follow these companies have done the same thing a year ago? So what kept their prices so high until yesterday? Fly, Retired IB’r,Shoeless and all you other finance experts are invited to educate me (Cos Cobber, you can chime in and tell us how Cos Cobbers don’t need no stinkin’ GPS cause they never leave their hollows). Thank you.

5 Comments

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5 responses to “So much for the efficient market theory?

  1. Mr. Independent

    Chris, why are you surprised? Well before the crash that supposedly came out of nowhere, every last employee of every mortgage bank/brokerage knew that the sub-prime loans they were selling to Wall Street were garbage, as were the securities manufactured from them.

    There were a number of people who knew that the combination of naked short sales of stock (which were supposedly illegal) and the trillions of dollars of naked credit default swaps, in excess if the actual amount of securities against which they were issued, made a run on highly leveraged investment banks increasingly possible.

    Yet, the Wall Street geniuses, the financial press, rating agencies, the regulators and everyone else who should have exposed the truth never did. What would make you think they got any smarter?

  2. FlyAngler

    Chris:

    If we have learned anything over the past couple of years it is that Google is a business model buster. Consider them the “big box retailer” of the internet but not in a retails sense (yet?). If you find more than a couple of stories about Google looking or playing in a space, do some research on who is there and whether Google can disrupt the space.

    Case in point: home many can recall the search engines Alta Vista, InfoSeek, DirectHit, Lycos, Yahoo search, Excite, Hotbot and more? How about MapsOnUs, MapQuest – still survivors but far diminished after the introduction of Google Maps.

    How many video sites went out after Google bought YouTube?

    Now look at the Android phone with the GPS functionality that Chris mentions. Will it kill Garmin and Tom Tom? Well, I would argue that the iPhone was the first nail in the coffin of dedicated GPS devices. The Droid technology will drive more nails but I don’t that kills the business completely but will severely dampen growth.

    I think the other risk is to subscription GPS services offered by other cell phone makers. How will Verizon charge $10 per month for Navigator if the VZN Droid phone offers if for free. Unless VZN prevents the Droid phones from getting the GPS data as it does with my Blackberry right now.

    If Google is looking at it, the incumbents should shiver. Like the local Mom & Pop hardware or office supply stores when HD and Staples came to their area. It will take time, but their demise is preordained.

  3. DB

    I’ve downloaded the new version of Google Maps. Verizon, my provider, restricts real GPS to “approved” applications, and surprise, surprise, Google isn’t one of them. No surprise they have their own app to do that.

    In defense of Garmin, Tom Tom and Magellan, Cell phones are limited to their coverage area for Cellular….not the limit of GPS satellites. So if you decide that you want to drive to Vegas and take a detour to a long lost mining town, cell phone isn’t going to cut it if you lose cell coverage (been there and done that).

    These days I use both a Tom Tom and Google for traffic updates when traveling. My plan is to eliminate the Google phone maps and buy a Garmin with free traffic. Phones are not fully designed to do Maps etc……so any thought of Google being my only map program is easily eliminated. These days AT&T is unable to supply iPhone users with decent phone calls, much less bandwidth for full map apps.

    Moral of my story……Garmin, Tom Tom and Magellan have a way to go before their demise.

  4. Anonymous

    EMT is stuff for Luddites and commies to delude selves and explain away own ineptitude

    Wouldn’t have all these billionaire <<45yo hedgies and techies if EMT nonsense actually existed

  5. greenmtnpunter

    When is Google going to line up in the sights of the Justice Dept’s anti-trust division? Now that they don’t have IBM to kick around anymore, isn’t it time to pick a successor? What better company than Google? Better check the Google campaign contributions first, though, before getting your hopes up, eh? So far, they have skated.