A myth, eh? Somebody recently won a Nobel Prize in Economics for that "myth." Eugene Fama. You might look into that.
FWIW, information doesn't have to be "perfect," it merely has to be what is known. Nether do investors need to be rational and they certainly don't have to be uniform. It's inherent in the nature of auctions that market prices are going to reflect the collective opinion on worth at any given point in time much more nearly than some theory of their value. About the future, everyone is guessing, it being impossible to do anything else.
Declining earnings lead to a declining stock price, invariably. If I need to explain the connection then this is bound to require a more remedial lesson in market basics than I am prepared to supply.
Amazon is not being valued by a completely different system. It's exactly the same one. They continue to push their top line at a massive clip, and to plow those earnings into growing revenues further (the definition of capitalism as it happens). At some point they will need to show where profits come from all this top line growth, and investors it would seem are becoming more nervous about that, bidding the stock sideways over the course of the last year or so.
You might want to cut the "conservative ideology" crap. This doesn't have a single thing to do with what I am saying.
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This is true, especially that last bit. And this comes from someone who has been lucky.
From what I hear on these boards, most people should not be buying individual stocks at all. They should be investing so much every month into a range of ETFs and not trying to guess what today's hot stock is going to be or what the markets are going to do today, tomorrow, next week, or even next year. If a person started that regime when they were 30 they could retire with millions, easily, without needing to hit any jackpots.
BTW, you fail to mention that Fama's hypothesis (EMH) (it is in no way proven, far from it, economy is not a science), have been under a lot of heat in the last 10 years, that other economists that have a behaviorist views of the market have also had the Nobel prize in the last 15 years. His thoughts don't rule the field.
An example of his waning influence.
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At the International Organization of Securities Commissions annual conference, held in June 2009, the hypothesis took center stage. Martin Wolf, the chief economics commentator for the Financial Times, dismissed the hypothesis as being a useless way to examine how markets function in reality. Paul McCulley, managing director of PIMCO, was less extreme in his criticism, saying that the hypothesis had not failed, but was "seriously flawed" in its neglect of human nature.[50][51]
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Also Fama himself said
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"poorly informed investors could theoretically lead the market astray" and that stock prices could become "somewhat irrational" as a result".
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Isn't that close to what I was saying hmmm. How could that be? Poorly informed investors. Those things shouldn't matter per Fama's original influential work... In response to his critics he's introduced what I would call "fudge factors" (sic) to account for variations from efficiency coming from imperfect information flows, in the latest extensions of his work.
Also...
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"Critics have suggested that financial institutions and corporations have been able to reduce the efficiency of financial markets by creating private information and reducing the accuracy of conventional disclosures, and by developing new and complex products which are challenging for most market participants to evaluate and correctly price."
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OK, won't go further. But, the gist of it is that views of asset pricing are now much more diverse than before; that it is seen as much more complex than before.
I think your thoughts on the whole thing are reflective of the general pre 2000 view. My position reflects a recent scepticisim of efficient markets.
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As for the thought that markets are efficient and will self-regulate, well come on, that is absolutely current conservative ideology (not the one from before 1975) everywhere (not just the US). It is all over every bit of Reagan conservatives' (and those who followed) talking points, since that time.
Myself I think that market can be efficient, but they need a bit of help (regulation) to keep information flows going and to protect irrational investosr from themselves.
