Carl Icahn got a Twitter account a little over two weeks ago. Where most of us would still be wondering what to do with our 140 characters, Icahn decided to boost the value of his Apple sharesby an estimated several hundred millions of dollars. Who says you can’t make money on the Internet?
The power of the tweet clearly reflects the belief that if such a successful investor believes in Apple, it must be a good investment. So the herd piles on. It’s like an endorsement of a political candidate or public figure. Warren Buffett’s public endorsement of Pres. Obama helped win him support from business. Ed Sullivan’s endorsement of Elvis Presley made it okay for suburban white parents to let their kids buy his records.
But should one man’s opinion have such outsized influence on a stock that so many people have in their pensions and college funds? What if he had shorted the stock and then tweeted that he loved Android?
The tweet raises another, deeper question as well: do stock prices reflect the actual value of a company to society? Is the free market functioning to provide capital to companies that create value and deny capital to companies that make lousy or obsolete products, fail to serve customers, or are simply incompetently managed?
That is what markets are supposed to do, right? We don’t have publicly traded crystal meth manufacturers, or makers of cigarettes for kids (Li’l Smokies!). Still, we can buy shares of alcohol makers when alcohol kills thousands each year, arms manufacturers, oil companies that suppress the development of other energy sources.
And shares of the banks who caused the credit crisis are doing fine, as they pursue new ventures like inflating the price of basic food grains, causing a famine; predatory lending by so-called for-profit universities; and more recently, artificially inflating aluminum prices.
Icahn’s tweet is sort of like the Twitter crash, in which a hacker sent out a false report on the AP’s twitter feed about the White House being bombed. It just worked in the opposite direction as far as investors were concerned.
But both events show how disconnected the market is from people’s real lives. Is Icahn to be praised or congratulated? If he uses the profits to eradicate a disease, as Bill and Melinda Gates are doing to polio and malaria, will that make the money mean something different than if he used it to buy a presidential election, as Sheldon Adelson tried with Mitt Romney? It might, but right now it doesn’t mean anything, really.
People talk about bubbles in various markets; we’re seeing the bursting of a real estate bubble in China now. But there’s another bubble that is much more dangerous. When markets exist inside a bubble that has nothing to do with creating value in the world, when stock prices soar after a company lays off workers, only some of that is “creative destruction.” The rest is just plain destruction.
If I walk out of MrTopStep’s building and turn left, I’m at the CME. If I turn right and walk the same distance, I’m at the Federal Prison. A block and a world apart. It makes me think just exactly how much an iPhone really is worth, not just to shareholders and owners, but society. It’s a thing of beauty, yes, but is it 3% more beautiful today than two weeks ago, when Carl Icahn joined the Twitterverse?
But what do I know? I’m editing this on my new HTC One, which, quite frankly, makes your iPhone 5 look like a glorified cigarette lighter. I think I’ll tweet about it.