Twitter vs. Tweeter and the Efficient-Market Hypothesis

This past Friday, I didn’t spend much time in front of the computer, but when I happened to pop onto Twitter to see if there was any news, I noticed a couple of tweets that were rather alarming:

Some folks may look at that and laugh or think it’s funny. I don’t. I think it’s embarrassing. First, I’m hoping that “investors” doesn’t necessarily mean people who manage other people’s money. If that’s the case, I would be very sorry for those people who happened to have someone managing their money that didn’t know the different between Twitter and Tweeter. Yes, I realize they’re very close, but when you’re investing money, don’t you want to be sure you know what you’re doing? Second, how can this mistake even be happening? I could see maybe a few people making this mistake, but for the stock to be up 489%? I wonder if maybe much of that extra trading was people realizing that other people think that it’s the Twitter stock, so they start buying the stock.

That last point really doesn’t make sense, though, because Twitter’s IPO just went public.

Another disheartening thing to think about as a result of Tweeter is the efficient-market hypothesis. This is a fancy way of saying that the stock market (or financial markets) should have the most current information. Meaning, if someone hears good news about company X, they’ll begin to buy that stock (which will make the stock rise and more people will hear the news and the stock will rise some more). This process continues until, theoretically speaking, the stock has reached the price that people are no longer willing to continue buying the stock.

Well, if we think about what happened on Friday, it certainly blows the efficient-market hypothesis out of the water. So, I ask again — how could so many people get that wrong?

 

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