Disequilibrium and Surfboards

One of the key aspects about investing is that markets aren’t smooth. Markets move from periods of stability to periods of “disequilibrium.” In other words, everything seems normal then suddenly, everything totally freaks out.
These “freak out” periods aren’t failures on the market’s part. They’re perfectly normal, and it’s simply how a market digests new information. That’s basically what a market is—a huge machine that’s constantly analyzing new information.
One of my long-standing complaints about the financial news media is that when a market freaks out, it’s presented as some sort of moral failure. For example, the blame for the tech bubble has now fallen squarely on the shoulders of dishonest Wall Street analysts. Well, there certainly were many dishonest analysts running around. But you’ll notice that the blame never falls on gullible investors. Or worse, non-gullible investors. Why is that? No one at Enron was responsible for Cisco going to $82.
The late journalist I.F. Stone said that history isn’t a morality tale, it’s tragedy. The market’s judgment is not a moral one, nor is it political. The stock market doesn’t care that much about you, or how you vote.
I noticed this story in today’s Wall Street Journal. The nation’s surfboard industry has been thrown into turmoil by the sudden closure of the major maker of foam moldings used for surfboards. No warning was given to clients.

The move could cause a severe short-term shortage of the base materials commonly used to make surfboards.
U.S. surfboard manufacturers since Monday afternoon have been scrambling to secure foam or alternative materials from companies as far-flung as Australia, South Africa, Spain and Brazil. Industry observers estimate that Clark Foam’s 100 employees annually manufactured about 300,000 foam moldings, known in the industry as “blanks.”
Gordon “Grubby” Clark, 73, founder and owner of closely-held Clark Foam, sent a seven-page letter Monday to his main distributors saying he was under scrutiny by the Environmental Protection Agency and California state and local agencies as a polluter and for violating county fire codes. In the letter, Mr. Clark said he decided to suddenly shutter his business because, “the State of California and especially Orange County where Clark Foam is located have made it very clear they no longer want manufacturers like Clark Foam in their area.”

I’m going to confess that I know nothing about the surfboard industry. But I will guarantee you that somebody, somewhere is working late into the night to capitalize off the apparent demise of Clark Foam. For the next few weeks or months, it might be tough finding that perfect board. But soon, everything will be back to normal.

Posted by on December 7th, 2005 at 10:26 am


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