Tuesday, February 03, 2004

The price of trusting Murdoch

According to (passé) market efficiency theory, the price of a quoted share reflects all available information and judgement. ‘Bad’ stuff is discounted, ‘good’ stuff sets a premium. As such, price is trustworthy.

In London – as theoretically efficient a stock market as there is - the price reflects any significant decision the second that it is taken. In less efficient markets – Jakarta say – the price reflects a decision as soon as it is communicated to key players by the decision makers. In the least efficient – say Kampala – the price reflects decisions when they are announced.

If nothing else, efficiency theory acknowledges that information is power and time is money. And as far as a share can ever be part of a trust bargain this is its basis. Technology has rendered market efficiency theory largely passé by destroying Chinese Walls just as the trust relationships made possible by the fax machine brought down the Berlin Wall all those years ago. Information is still power though and time is still money. And ‘insiders’ still deal. Markets evolved and are regulated in this knowledge.

The basis of capitalism is ‘more is better’ - not much space for trust of any kind there. So if you want to know what the Murdochs are up to, look at the share price. (Ever wonder why Richard Branson bought back all his shares and now runs his empire privately?) My initial trust question in this context is always the same, particularly when Murdoch is involved: if your business exists solely to serve the needs of its shareholders, why would I, not being a shareholder, believe you will take care of my interests? Remember Enron.