Category archives: Debunking The 'Markets Are Efficient' Myth

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 ...

"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 ...

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 ...

"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 ...

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 ...

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 ...