AmplifiedVolatility 67ing of stocks. The spread has widened between Mr. Market’s cur-
rency (prices, what you pay) and corporate management’s currency
(value, what you get).
The symptoms of that inefficiency and the consequences of that
amplification consist of all the phenomena cataloged in Chapter 1,
including bifurcation of markets (for example, between the Dow and
the Nasdaq) and roller coaster rides of crashes and breaks. Episodes
such as the crash of 1987 and the brea kof 1989 no longer loo kli ke
isolated aberrations; rather, these and the spasmodic bursts and
busts of the late 1990s and early 2000s evidence a disease that is
not only epidemic but chronic.
EMT was never a perfect explanation of the stoc kmar ket, but
whatever purchase it once held is declining further and rapidly in
today’s market climate. It may have had some appeal in an era when
trading enjoyed the benefits of a major filtering role for the financial
press and investment professionals. While these institutions were
never perfect in those roles, their training, knowledge, and profes-
sionalism (and, for advisers, interest in stable markets for under-
writing and merger advisory businesses) too ksome of the edge off
their human infirmities. It didn’t make EMT right, but it did make
it seem plausible.
The rise of the Web, ECNs, day traders, and the individual in-
vestor have produced unfiltered stoc kmar kets that retard rather than
promote efficiency. SEC Chairman Arthur Levitt testified before
Congress that market fragmentation created by the rise of ECNs
could lead the same stoc kto trade at substantially different prices
in different trading forums. Maybe that would create new and ex-
citing arbitrage opportunities, but the chairman’s insight makes the
case against existing stoc kmar ket efficiency airtight.
As the next chapter shows, these trends in market behavior imply
that managers and investors should ignore how the market is be-
having with respect to pricing securities and focus instead on their
own knitting: running businesses with strong economic character-
istics and looking for them, respectively.