Wednesday, August 23, 2017

Markets Reveal Value

A recent article in the WSJ reports that:
Four mutual-fund companies have marked down their investments in Uber Technologies Inc. by as much as 15%, the first such price cuts that suggest these investors are souring on the ride-hailing giant following a scandal-ridden year.

A 15% swing in price in one day is huge. This happens because Uber is privately held and there isn't an organized market for the shares. They do not have to announce write downs of their shares in, say, GM or Merck. They simply check their favorite financial news site. But they likely had a team gathering information and poring over the numbers in order to come up with the new Uber price point. This is costly. One of the great virtues of markets (described beautifully by Hayek) is that they reveal value to the uninformed nearly costlessly. Yet another reason economists are so infatuated with markets.

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