David,
Glad you chose to write about the Berenson article, which I thought was the best thing in this Sunday’s New York Times.
It seems you and I read into his piece different conclusions. My takeaway was that the information deluge is making the markets less efficient, not more. With so much competing and conflicting information from an ever-widening array of sources, it’s increasingly difficult for a consensus to take hold. In other words, it’s not that the market efficiency is keeping pace with the rapid information flow. Rather, in the increased absence of efficiency, prices scatter.
For an example in practice, take the B2B phenomenon. That got legs so quickly that we at TheStreet.com almost missed it, as did many investors! Shortly after we jumped on it, it lost its oomph. (We are still covering B2B.) Essentially, with massive information overload, consensus is elusive, and prices jump about accordingly.
A few other points. To your comment that people who buy stocks just because the prices will go up are jokers, I say, they’re OK by me if they make money. Making money is the only reason to be in the stock market. For those so inclined to be “momentum” traders, my hat’s off to them if they can succeed at it.
Also, just because the market is volatile doesn’t mean a pension or mutual fund manager has to follow suit. Index funds, for example, have very little trading and, in turn, few costs for investors. Investors who select active managers, especially ones prone to lots of trading, choose higher costs with their eyes open.
Finally, for the record, Alex Berenson came to the Times from TheStreet.com. We’re proud of our offspring!
OK, on another note, any thoughts on the New York Post article on the mutual fund industry today? I thought the usually prodding Post was a bit easy on the industry here. Essentially, the industry opposes the proliferation of “Internet-based investment advice”–whatever that is–as something that will “harm investor interest.” This, from an industry that has repeatedly underperformed the stock market?
