1. The efficient market hypothesis states that
3. Bottom line - Although the more efficient markets often misvalue assets, it's not easy for one person - working with the same information as everyone else ad subject to the same psychological influences to consistently hold views that are different from the consensus and closer to being correct
4. Psychological influences are a dominating factor governing investor behavior. They matter as - and at times more than - underlying value in determining securities prices
5. Most important upshot from the efficient market hypothesis is its conclusion that "you cant beat the market"
6. Mutual Fund Ratings - Read the small print: mutual funds are rated relative to each other. The ratings don't say anything about their having beaten an objective such as a market index
7. One of the greatest ramifications of (6) is development of passive investment vehicles know as index funds.
8. Second-level thinkers depend on inefficiency. The term inefficiency came into widespread use over the last forty years as the counterpoint to the belief that investors can't beat the market. To me, describing a market as inefficient is a high-flown way of saying the market is prone to mistakes that can be taken advantage of
9.
- There are many participants in the markets, and they share roughly equal access to all relevant information. They are intelligent, objective, highly motivated and hardworking. Their analytical models are widely known and employed.
- Because of the collective efforts of these participant, information is reflected fully and immediately in the market place of each asset. And because market participants will move instantly to buy any asset that's too cheap or sell one that's too dear, assets are priced fairly in the absolute and relative to each other
- Thus, market prices represent accurate estimates of assets intrinsic value, and no participant can consistently identify and profit from instances when they are wrong
3. Bottom line - Although the more efficient markets often misvalue assets, it's not easy for one person - working with the same information as everyone else ad subject to the same psychological influences to consistently hold views that are different from the consensus and closer to being correct
4. Psychological influences are a dominating factor governing investor behavior. They matter as - and at times more than - underlying value in determining securities prices
5. Most important upshot from the efficient market hypothesis is its conclusion that "you cant beat the market"
6. Mutual Fund Ratings - Read the small print: mutual funds are rated relative to each other. The ratings don't say anything about their having beaten an objective such as a market index
7. One of the greatest ramifications of (6) is development of passive investment vehicles know as index funds.
8. Second-level thinkers depend on inefficiency. The term inefficiency came into widespread use over the last forty years as the counterpoint to the belief that investors can't beat the market. To me, describing a market as inefficient is a high-flown way of saying the market is prone to mistakes that can be taken advantage of
9.