Category archives: Debunking The 'Markets Are Efficient' Myth

How The Popularity Of Efficient Market Hypothesis Benefits Value Investors

Last update on Sept. 19, 2013.

Money on the ground: As the blog post will explain, believing in EMH means there's never any free money lying on the ground. CC image courtesy of Greg Dunlop

 

The 'Efficient Market Hypothesis' (EMH) is like a religion. Believing in it has a dramatic influence on the way you actually invest. Plenty of financial advisors believe in EMH, which makes this subject very relevant for us. In this series, we discuss what EMH is, why it's wrong and why that matters.

In part 5, we discussed the third and final reason why EMH is wrong: namely, that ...

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Reason #3 Why Markets Are Not Efficient: Too Much Focus On Short Term

Last update on Sept. 19, 2013.

Musical chairs

"They are dancing in a room in which the clocks have no hands." - Warren Buffett

The 'Efficient Market Hypothesis' (EMH) is like a religion. Believing in it has a dramatic influence on the way you actually invest. Plenty of financial advisors believe in EMH, which makes this subject very relevant for us. In this series, we discuss what EMH is, why it's wrong and why that matters.

In part 4, I raised another big objection to EMH, namely that people often make decisions using their emotions, rather than cold hard logic.  In this instalment, I explain another reason why ...

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Reason #2 Why Markets Are Not Efficient: People Are Emotional

Last update on Sept. 19, 2013.

 

The 'Efficient Market Hypothesis' (EMH) is like a religion. Believing in it has a dramatic influence on the way you actually invest. Plenty of financial advisors believe in EMH, which makes this subject very relevant for us. In this series, we discuss what EMH is, why it's wrong and why that matters.

In part 3, I raised the first real objection to EMH, which is that people often act stupid when it comes to investing. In this installment, I launch a second volley against the EMH. I can summarize today's argument in this single sentence:

People act ...

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Reason #1 Why Markets Are Not Efficient: People Don't Research

Last update on Aug. 21, 2013.

"The best argument against democracy is a five-minute conversation with the average voter." - Winston Churchill

The 'Efficient Market Hypothesis' (EMH) is like a religion. Believing in it has a dramatic influence on the way you actually invest. Plenty of financial advisros believe in EMH, which makes this subject very relevant for us. In this series, we discuss what EMH is, why it's wrong and why that matters.

In part 2, we discussed the academic literature in support of EMH, and the implications of believing in EMH. In this installment, we give you one reason why it's wrong:

People ...

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The Consequences Of Believing In Efficient Market Hypothesis

Last update on Sept. 19, 2013.

CC Image by Stephanie

In the last installment of this series, we discussed what 'Efficient Market Hypothesis' (EMH) is, and why we should care. Believing or disbelieving in EMH will make you invest very differently, much like how your religion (or lack of it) will lead you down very different paths for your life.

In this installment, we will examine the evidence for EMH, and the implications for believing in EMH.

Adademic Literature

Academics started to become interested in an important question as far back as the 40's. 'Can investment professionals beat the market'? In other words, can they ...

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What Is Efficient Market Hypothesis?

Last update on Sept. 19, 2013.

Unicorn

CC Image by Rob Boudon

"I'd be a bum on the street with a tin cup if the markets were always efficient" - Warren Buffett

A few decades ago, a theory called 'The Efficient Market Hypothesis' (EMH) became popular. Ever since then, fierce debate raged among serious investors, between those who subscribed to this view, and those who didn't. Even if there's a good chance your average financial advisor doesn't understand what this theory is about, you should.

Why should you care?

Whether you subscribe to EMH or not has profound implications on how you invest. It ...

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