More on United Airlines & the Efficient Market Hypothesis

While with a friend today at a rare Saturday afternoon poker game, we got talking about the United Airlines bankruptcy story that inadvertantly crept up to the top of the headlines earlier this week. As a hedge fund guy, we laughed and said he watched the stock fall in real time. His boss asked what was happening - "United's filed for bankruptcy." Once the headline hit his computer screen, the stock began to free fall.

Here's the stock chart from the last 10 days:

And the trading volume:

I found the charts interesting for a couple of reasons. First, the sharp decline on the heavy volume of positions dumping their shares. Second, the subsequent recovery of the stock once the market understood the story to be old news from 2002. Always nice to see the financial markets work efficiently.

The Efficient Market Hypothesis in action

One of the more interesting and hotly debated concepts in finance is the efficient market hypothesis, which "assumes that all important information regarding a stock is reflected in the price of that stock." (Definition courtesy of Brigham's 12 edition textbook.) Personally, I'm not exactly sure where I fall on this argument, thought it's clear that barriers drop daily as technology continues to transfer information at a faster and faster rate.

That said, I have a little chuckle about this article regarding United Airlines and its stock price after an old news release seeped into the regular news cycle.

Our Fearless Leader on FOXBusiness

Just a quick plug for our work at Altos Research. Mike Simonsen, our CEO, was interviewed on FOXBusiness News this week with a focus on potential bright spots in the US Housing market. Always cool to see our little shop get some national exposure. Here's a link to the video interview. (There's a short commercial as with all videos - just a quick 15 seconds then to the good stuff....)

Interview with Spider Juice Technologies

Tim O'Keefe at Spider Juice Technologies and Houseblogger.com interviewed me to learn more about Altos Research and how we support real estate agents in answering "How's the market?" for their clients.

We had a great time talking both before and during the interview. Check out and downloadthe interview here.

If you're not familiar with Spider Juice, they provide web and internet marketing support, including search engine optimization, blogging support, and guerilla marketing for real estate agents.

Viva Monopoly!

With the launch of Google’s new browser – Chrome – I can’t help but consider one of the basic laws of market economics:

Monopolies are good.

Back in 1997, strategy+business published an interview with Paul Romer, a Stanford economist that has been a leader in the development of new growth theory. In the article, Romer discusses how the possibility of monopoly gives incentive to the private sector to innovate new products, so that they may corner the market for a period of time and generate increasing returns on investment.

About that time (in 1997), Microsoft was considered the dominant software company and expected to run the computer world for generations to come. Since then, it's endured tremendous pressure from its destruction of Netscape and ongoing anti-trust battles across the world. I refer to Microsoft, because in the last decade we’ve seen Google emerge as the new leader of the information age. In leveraging their search engine technology and other innovations, they’ve launched Google Docs and Google Spreadsheets to compete with Microsoft Office. Their search has reorganized the way the companies build websites and deliver content. With the release of Chrome, Google is hitting Microsoft head-on in the web browser arena where Microsoft had the assumptive monopoly less than ten years ago.

From October 2007 through August 2008, the Windows operating system has gone from 92.5% to 90.6% market share, with Mac and Linux slowly creeping up. This 2% doesn't seem like alot, but ask Microsoft if they're worried. (Internet Explorer has lost 6% market share during this same period.)

Recently, Firefox nabbed 17% of the browser market and Safari grabbed another 6% according to Market Share. With Chrome now reported to have 1% of the market in just 24 hours, it seems that the monopoly is less than so nowadays.

Going back 20 years to the mid-1980s, Microsoft was the young, nimble company targeted the entrenched monopoly of the terminal computer. Seeing a pattern here?

No company, especially in the IT industry, is safe from competition. This is what drives Silicon Valley and the world to build the better mousetrap. Ten years from now, you'll be reading about how Google’s dominance is fading because of some other new emerging leader. Ten years is just a single business cycle in economic terms. While monopolies appears to exist, they don't last very long. That's why companies strive to acheive them, protect them, and maximize on them, because they know that they are fleeting.

Capitalism works if you let it breathe.