Are the Markets Really Efficient?

Warren Buffett has always been open about his approach to investing, singing the praises of focusing on business fundamentals to find strong stocks at good prices. However, in a recent BloombergView article, columnist Noah Smith outlines some reasons why the Buffett philosophy actually contradicts the efficient market hypothesis (EMH), an investment theory that says it’s impossible to beat the┬ámarket because existing share prices reflect all relevant information. A recent debate between University of Chicago finance… Read More

OSAM on the Efficient Market Myth

While many believe that equity markets — particularly large-cap equity markets — are efficient, quantitative investing guru James O’Shaughnessy’s firm says the data shows otherwise. “Our research shows that, with the right strategy and the right discipline, the U.S. large cap market remains very inefficient and — by selecting stocks using historically proven themes — investors can outperform it by significant margins,” writes Patrick O’Shaughnessy in a new research report from O’Shaughnessy Asset Management. In… Read More

What an Inefficient Market Means for Investors

In his latest Wall Street Journal column, Jason Zweig offers an interesting take on the efficient market hypothesis, channeling the late, great Benjamin Graham for guidance. Zweig says that while the stock market may give the most accurate estimate of a stock’s value based on the available information, that doesn’t mean its estimates are right. The reason, he says, involves the two main factors that Graham said go into a security’s price: ‘investment value’ (which… Read More

Shiller: It’s The Psychology, Stupid

Don’t underestimate the impact psychology has on the stock market and economy — that’s the message Yale economist and housing crisis predictor Robert Shiller recently gave during a lecture at The New School, the video of which is now available on Fora.tv. “Psychology really matters,” said Shiller, whose new book, Animal Spirits, co-written with George A. Akerlof, delves into the psychology of markets. “Our theory is that animal spirits is what substantially drives economies,” Shiller… Read More