Tuesday, July 3, 2007

Efficent Markets and the Lunch Money Gamble

Good news boys and girls, I was not short AAPL today. In fact, I didn't even wake up until 9:30a which is about the latest I've slept in for 2 or 3 years. I didn't even look at the stock market until 11:45 PDT and by that time it was closed (the market closed at 10am my time today, an abbreviated session ahead of July 4).

Apple was up over $5.50. I expected that action yesterday and nothing happened between today and yesterday really, but the notion of the stock market being perfectly efficient is bogus. It's a very efficient market, but it's not perfectly efficient. This inefficiency for a good trader = opportunity.

I could have bought in anticipation of this, but a.) I am not usually a buy and hold overnight kind of guy and b.)the back of your mind starts wondering if maybe someone knows something I don't know.

I think by any metric, the launch of the iPhone during the first weekend was a success, but information does not flow freely. I had seen forecasts of 200K and 300K units sold for the weekend on Thursday and Friday that were modified to 500K and 700K by Monday. The problem is, I don't know how many units were shipped and available to begin with. I didn't want that information coming out and surprising me. Without doing any research at all it looks like Monday the market wasn't sure, and today the market was quite giddy about AAPL.

In a perfectly efficient market, AAPL would have just opened up $5 higher on Monday -- that didn't happen because the market is not perfectly efficient. However, as you will see in the coming weeks, compared to many markets and especially one market in particular (the market for advertising), the stock market is extremely efficient.

Anyway, as I have been writing for over a month now, I'd be LONG, LONG, LONG AAPL. I see it going to $500 before I see it going back to $50. Not enough to bet on it, but that's got nothing to do with my belief in AAPL, but around stupid psychology around trading that I just haven't undone yet. It's on the list of things to do, and that I get a chance to even ever think about that at all, that's what America and independence really mean to me. Happy July 4th!

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