Apple proves that our economic system is not based on rationality

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Gundlach: Apple’s 40% plunge has singlehandedly debunked the efficient markets hypothesis
[Via MacDailyNews]

“The efficient markets hypothesis basically states the markets are always accurately factoring in all relevant information about a security, and are pricing said security ‘correctly,’


Apple has a PE ratio minus cash of about 6.5. This means that a leveraged buyout could take the entire company private and pay for the debt out of revenues in 6.5 years! And that is assuming that Apple sales stay the same, which no one is predicting. At worse, some analysts say the growth in sales will not be as great as expected.

A company worth $400 billion and it could be taken private in a leveraged buy out so easily.

There is simply nothing like this. The value of Apple has no relationship to reality. Same with Amazon which has a PE ratio over 1200.

Wall Street simply does not know how to value companies like Apple, Google, Amazon or Facebook. I’ve written about W. Brian Arthur’s work on the effect of increasing returns in business before. These organizations use the positive feedbacks of the modern world to leverage themselves. 

Wall Street is really only able to value companies that re dealing with decreasing feedbacks – dwindling resources, manufacturing problems, etc.

Apple gets it, as well as other 21st century organizations. But Wall Street, almost entirely a product of 20th century approaches does not. And probably never will.

It is like trying to describe the third dimension to a bunch of Flatlanders.