How efficient markets are?

Money is expected to generate when investor invest their money into stock market.  It is known that many investors do not only aim for profitable return, but they, too, try to outperform the market. Market efficiency will always be reflected on all available information on a particular stock or market at any given time.  Companies do not reveal all information, or no one can actually have access to all information that a company has to take advantage in predicting a return of a stock.  We know that there are 3 forms of efficiency which are weak form efficiency, semi-strong form efficiency and strong form efficiency which were identified by Fama (1970).

Earlier this month, Glencore announced to cut zinc production by a third has effectively boost up zinc's price as well as its share price. Previously, commodity prices were falling so badly that Glencore, as one of the biggest commodity company, was battling with the fall of the price too.  With its announcement of cutting zinc production, Glencore's share price increased to 133p.  The sudden announcement caused investors to invest in this stock because zinc's price has always been low for few years and its sudden production cut have increased the zinc's price which increases its share value.

Heath Jansen, who is an analyst at Citigroup, believes that Glencore is protecting its value by cutting production which is not profitable.  Personally, I think that Glencore has made the right decision in cutting zinc production as it is trying to save the company from falling to its ground and that decision has definitely covered some of its debts, although not entirely. 

So, how did this news affect the market efficiency? 

As we can see, the announcement of cutting zinc production has led to an increase in Glencore's share price.  Due to this, can we conclude that investors are acting and responding rationally?  However, in my opinion, I think it is based on how investors perceive and interpret the news in their own ways.  There are rights and wrongs in making decision, but at the end of the day, it all comes down to investors' piece of mind of looking at it.  The 'random walk' prices was discussed in class that price changes in random fashion and share prices reflects all known information by the public at any time; which includes a few factors such as government, international transactions, speculation and expectation and supply and demand.  

Digby Jones : The New Troubleshooter

Based on the documentary of Digby Jones: The New Troubleshooter, Digby Jones was seen helping out Hereford Furniture to their current situation which they made a loss of  £80,000 in the previous year's sales.  The main reason for Hereford Furniture's downfall was Mike Muxworthy, as the managing director, are doing three businesses at the same time.  The company was unable to cope with this challenge as the management was poor and disorganized as well as the company's accounts and cash flows.

As Hereford Furniture was looking at three businesses together, which was importing, retailing and manufacturing, it has made the company to lose its focus. And how Digby wanted to help them was to make them refocus on what Hereford Furniture is able to do, which was to focus only on one business.  In the video content, Mike said "why not?" to handling three businesses because he thought he could do it, which was wrong because I personally think it would make him lose attention at some point.  Because Hereford Furniture is a medium-sized company, its competition in the furniture industry is going to be definitely large and all the medium-sized company will find its way to go further, and if Hereford Furniture is unable to cope with so many ranges of business that they are doing, they will get to nowhere; therefore, making a loss in their revenue. That's why, to beat the foreign brands of furniture, companies like Hereford has to work harder to attract UK customers. However, after many discussions, Mike was willing to take advises that were given by sir Digby, which was to scale down their ranges of stock and only build for stock.

Another issue that was brought up in the documentary was Mike and the team were unable to provide proper accounts that Digby wanted to see.  Mike only assumed that by cutting down ranges of products, it would increase 40% of the stock but are unable to do the accounts that can prove it. Also, they are unable to show Digby a proof of financial implication because they do not have enough accounting resources in the company.  But as they move on, they realized that they need this financial implication to implement their project, whether or not this work can be done. The figures that they will be getting will be sufficient enough for them to work things out.

Also, the issue of communication between workers were shown in the workplace, and the employees were saying that this department does this and that department does that, but nobody was doing it as a whole, which I think it has made the workplace to be a little inefficient.  As Mike realizes this problem, the company has made a small activity among the employees to build a better relationship and to communicate between one another, to create a new stamp which could be a symbol of the new brand.  In my opinion, building a good relationship among employer and employees will definitely be a plus point for the company as they can communicate better instead of being inferior to their boss and being reluctant to voice out their opinion.

At the end of the documentary, it was shown that Mike has done all the necessary changes that was mentioned by Digby and it is good thing because I see that Mike is willing to let go his old methods of doing things to ensure a better future of this company and for the betterment of his employees.