"This pony tail keeps me relevant.... right?"
I am over 1,000 page views! Thank you everyone who has viewed 17and17. I will continue to make improvements to the site.
1000 fun fact: If you start with $1,000 and get a 20% average annual return for 38 years you will have $1,020,000 if you do not have to pay taxes while compound interest on your initial investment.
The efficient-market hypothesis asserts that financial markets are "informationally efficient". That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made. The market is priced perfectly and no advantage can be gained by doing research, (fundamental, technical analysis etc.). Many very intelligent people believe that this hypothesis is true. They would have all investors invest in index funds that will mirror the average returns of the overall market.
Of course these closed minded financial atheists are incorrect. I'm sure that they are very intelligent men and women but they have boxed themselves in mentally if they truly believe this mendacious theory. They lack the wisdom to think critically about the overall markets and the opportunities that they offer to wise hard working investors. Fortunately you do not have to look far to find market prophets that disprove this silly hypothesis. Jim Cramer, Warren Buffett, and Peter Lynch are a few famous examples.
Who has heard of Burton Malkiel? He is a leading expert and proponent of the efficient-market hypothesis. I googled Burton and the article did not say anything about his success as an index investor. It listed out a bunch of academic credentials and papers that he had written. Why is he running round writing all those papers....... For no money!?!? Because of course he is an academic like the other proponents of this theory. A theory that is in the end false. But that is what academics do; sit around make up theories and then write papers and argue amongst themselves.
I would like to make money in the stock market, not argue about silly theories. When I first read about the efficient-market hypothesis I was very disappointed because I thought to myself, "All of my studying and following the market doesn't matter. I should just get an index fund and forget about studying the market and investing." After doing some research and critical thinking though it becomes very apparent that there is a ton of room to make money in the market and the market is anything but efficient or logical. The market and investor emotion that goes with it can create investing opportunities that can last for days, months, and even years at a time. Just look at the .com bull market in the late 90s. Was Pets.com stock efficiently or perfectly priced when it had no earnings and was trading at a +100 multiple? During the recent 2008 crash was Ford stock efficiently or perfectly priced when it was selling for $1.50 per share and the companies assets alone were worth $5 per share? Or could a wise investor who studied the fundamentals have realized that Ford was a steal at $1.50 per share on 11/17/2008 when its components alone were worth $5 a share and then made a massive profit by selling Ford's stock a year later for $16 a share?
The invalidity of the efficient market hypothesis is as obvious as the opportunity for profit that the market affords us. Every time I come across it in a book or an article I'm shocked that it still even exists. Keep in mind that intelligence does not always include wisdom, and you need a mix of both in order to succeed at investing or any other venture you choose to take on in life that requires strategic thinking.
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