Value of Information for a Financial Market

Over the long term, the sort of information that matters most is available to anyone willing to do the necessary research, and equipped to make good judgments on that information. Is, for example, a given computer software firm going to be more valuable five years from now than it is today? Ultimately, no one can do more than guess, but an informed guess can be based on the development of the software industry as a whole, on the company's past performance, on its continuing ability to hire first-rate programmers, and a host of other factors, all of which can be estimated by anyone with the time and skill to obtain the appropriate information. The company's top management does not really have any more of this information than any other informed investor--indeed, management's skill in making strategic business decisions is one of the factors a skilled stock analyst would evaluate.

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mall proportion of all shares outstanding, particularly of those large firms that shaped the American economy, and that were traded in the New York Stock Exchange. In these conditions, the primary questions in the minds of shareholders and even traders were long-term fundamentals of the sort outlined earlier, information of a sort that gives insiders little if any advantage over any well-informed trader. By the 1970s, however, a number of underlying factors were changing the shape of the stock market. New technology and foreign competition were challenging the primacy of long-established firms; one could no longer assume that because General Motors sold so many cars this year, it would be selling so many more cars five years from now. The economy was less stable, and therefore the stock market, which in a sense is an instrument panel for measuring the performance of the economy, was also less stable. Stocks in long-established firms that everyone was familiar with often tended to lag, while stocks in small new start-up firms soared. Styles of corporate management were also changing. Widget-manufacturing firms had once been run by people who had spent their professional lives in widget-making. But in the 1960s, a belief gre
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Approximate Word count = 1895
Approximate Pages = 8 (250 words per page)

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