Are the markets efficient?
This question is akin to asking me if people are rational by nature. The general answer is yes, people are rational most of the time. But sometimes they are irrational as well.
One example of this irrationality is waiting online for about an hour and thirty minutes for a burger, fries and shakes from http://www.shakeshacknyc.com/ . That is irrational. The payoff in that scenario is lose/lose. If you haven’t tried shake shack yet, you should definitely try it. But I am digressing….
Irrationality comes in the form of fear, europhia and other human emotions. If there were efficient markets, there would not be bubbles, crashes and any extreme events. Efficient markets would imply opportunities that cannot be gamed.
This is not true. Opportunities to “game” the markets exist all the time. Again, this is not to say that this is a game that it is easy to make money from. Just as in poker, the stock market requires much discipline, patience and enough conviction and an ability to stomach swings in both gains and losses in your portfolio/bankroll. With that said, there are many different ways to play the markets as there are in poker. I truly believe there is no one absolute method to making money in the markets just as there is no “best way” to play in poker. A market speculator/poker player needs to adjust his strategies to how his market/table is acting/reacting.
There are many different strategies that hedge funds utilize in the stock market.
Before we start, lets talk about what hedge funds are.
A hedge fund is basically an investment fund much like a mutual fund where the aims of this fund is to make their investors money. A hedge fund differs from a mutual fund in that it is able to go long or short, and has a lot of leeway in determining how to allocate capital among investments.
More on hedge fund strategies in the next post…
June 7, 2008 at 9:35 pm |
Joseph,
Is waiting 90 minutes for Shake Shack irrational? What if one considers it the greatest food ever – akin to manna from heaven. Wouldn’t it then be rational to wait even longer?
June 9, 2008 at 9:16 pm |
I’ve waited for over an hour to get some halal at 53rd and 6th. It was great. In your case, you didnt like it as much because you were waiting on line to get food for the other people and not for yourself.
June 10, 2008 at 11:00 am |
To: Awesomeness,
I got some food for myself as well as my colleagues. It was definitely not worth the wait. The fries were pretty good and the black and white shake should be renamed the heart-attack shake. However I think Shake Shack’s burgers are comparable to Joe’s Best Burger or even Good Burger which do not have an hour and a half long wait. The sheer amount of people who are willing to spend the amount of time for a slightly above average fast food meal does not make any logical sense to me.
Waiting an hour and a half for a seat at Momofuku noodle bar or tao restaurant make sense but definitely not Shake Shack. Everyone of course is entitled to their opinions and everyone gets to vote with their dollars. I can see that Shake Shack is a very very profitable enterprise.
June 12, 2008 at 5:32 am |
In order to define rationality, we must first define the parameters of the game. The many people waiting on line for Shake Shack all have different variables that affect whether or not their decision is rational.
Let’s say the goal of the game is to maximize Money and end up with the highest Utility:
- A mindless corporate zombie on their lunch break loses no tangible value waiting for ShakeShack or pissing their lunch break elsewhere because this lapse in time has no hourly wage attached to it. Sad to say, most people have no earning power besides their paycheck.
- The utility provided by the food and experience varies greatly depending on the person recieving the product, so this can’t be generalized
- I can say to a high degree that waiting 1.5hours for a seat at Tao is much more irrational than ShakeShack.
- A human’s irritability at waiting online for a meal has no tangible +/- value for our game of money, and has no effect on end utility because he may be surprised by enjoyable food.
There are too many variables that go into the value of an individual’s time and perception of utility.