3 Examples of Stock Market Silliness
Updated: Jul 3, 2020
As we spend more time in this topsy turvy market, I am beginning to realise that the stock market is weirder than I thought it was. I had read about the efficient market theory many years back and obviously I knew that the markets would not be perfectly efficient. But what I have noticed in the last few days is simply ridiculous examples of how inefficient the market actually is. So here are some recent examples that I have seen myself of read about the level of idiocy in the market.
In the last few weeks most of the world’s population have retreated into their homes however, we need to stay connected to our colleagues and loved ones. In the midst of this one company has emerged as an absolute necessity while everyone is stuck indoors and that company is Zoom Video Communications (ZM). Zoom basically provides a video conferencing service and its platform is free. Many businesses, schools, organisations who were not equipped with any enterprise level video conferencing technology have actually adopted Zoom in a very short time span. Obviously, this is great for the ZM stock doubled in value ($75 to $150) from 15th Jan 2020 to 15th April 2020. So what’s weird about this?
In their haste to jump onto the Zoom bandwagon, many investors seemed to have bought the wrong Zoom. The bought Zoom Technologies (ZOOM) which is a Chinese company that also deals in telecommunication technologies. Since mid January, ticker symbol ZOOM has reached a peak price of $20 which is 10 times its original price. Since its peak, ZOOM has its stock suspended as people continued buying the stock which is simply ridiculous.
Tripping over TripAdvisor
This is the example that really inspired me to write this piece. Yesterday on 15th April 2020, I started getting notifications on my phone about this stock that was going wild. This was Liberty TripAdvisor Holdings (LTRPB) which usually trades around the $5 mark, I opened my Yahoo! Finance app and lo and behold, it was sitting at $90 (peaking at $103 for the day).
So, I started asking around for the reason. Surely there had to be some big news that had reached the market causing the stock to appreciate by 2400%! There was nothing in the news. No one knew what caused the spike. At the end of the day the company released a statement that it had no idea what caused the volatility in price.
Similar to the Zoom case, trading on the stock halted and many people were caught holding the bag. It is left to be seen what is the outcome of this.
The Hathaway Effect
In 2011, someone noticed a very peculiar pattern with the Berkshire Hathaway (BRK.A) stock. Just before the Oscar weekend, on Friday, BRK.A rose by over 2%, and on the Monday after the stock rose 3% again. There was no announcement of Warren Buffett’s moves or anything similar. Analytics showed that the reason why Berkshire Hathaway rose that weekend was because Anne Hathaway was hosting the Oscars that weekend. Apparently the trading algorithms were picking up positive sentiments with “Anne Hathaway” as the subject and attributed it to Berkshire and that caused the prices to rise.
And further correlation studies actually showed a positive effect of Anne Hathaway’s movies on the Berkshire stock. I did a quick search on my own of her recent movies and found this to be surprisingly true!
Now that has to be one of the most ridiculous reasons to buy a stock, but Anne Hathaway does have a few movies releasing in 2020 for anyone who wants to take a punt.
So, these were just my observations and I am sure there are countless other examples of when these absurd situations arose in the market, and most of these won’t even appear in the news. So, while theoretically the market is supposed to be efficient, in reality human behaviour creates such weird situations. I would be keen to hear any other such examples that are out there!
Disclaimer: This post should not be interpreted as investment advice as I am not a professional financial consultant. The objective of this blog is to share my experiences with others and receive feedback. I will provide links to my information sources to the best of my abilities, but the reader is responsible for their own due diligence