70 ATaleofTwoMarkets
when the time is right to take advantage of Mr. Market’s festering
gloom and when the time is right to steer clear of his maniacal
euphoria.
The debate over how much of market behavior EMT captures is
an endless one. This is the case because its devotees tell us that as
it starts to explain less, opportunities arise for informed people (such
as those who act on the mind-set they develop from reading this
book) to step in and correct things. Thus, EMT gets restored. The
endlessly open empirical question is the degree to which one effect
swamps the other.
On balance, the Internet’s negligible business information qual-
ity and the frolicsome day traders acting on it suggest plenty of in-
centive for real investors to get informed and plenty of room left
over after they do. In other words, if the current trading environment
makes it seem that EMT’s descriptive power is going to look more
like 70% in the coming years, people acting on it may be able to
return its power to about 80% after that. Those most able to partic-
ipate in taking advantage of that process are investors equipped with
a business analysis mind-set.
WHO’S IN CHARGE?
From a manager’s perspective, an important consequence of market
complexity is that directors and officers cannot control a company’s
stoc kprice. Hence, shareholders should not expect or require them
to maximize it. Managers can only be expected and required to man-
age their own business and its fundamental values, not how the
market understands that performance. Investors and traders make
those determinations, not managers.
It would be a mistake, however, to allow this reality to immunize
managers from reproach for poor stoc kprice performance over long
periods of time. What this means is only that managers cannot be
held responsible for fluctuations in the company’s stoc kprice that
result from the passions of the marketplace. It does not mean that
a long-term subpar stoc kprice is not a reflection of actual mana-
gerial ineptitude.
Good managers will enjoy average stoc kprices of the company
above the norm; bad ones will suffer average prices below it. Neither
is responsible for, or can claim credit for, the intermittent ups and
downs. As Ben Graham said, “Good managements produce a good