Ghost of Igloi wrote:
agip,
As you will remember from our CFP studies the Efficient Market Hypothesis is just that-a theory. The belief that the market prices in all knowledge certainly did not work in 2000 or 2007.
Igy
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See Dr. Joseph Stiglitz's Nobel Prize for information asymmetry. Information is NOT distributed evenly, so there are ALWAYS imbalances to exploit, just as Stiglitz showed that government can improve the efficiency of the economy by improving access to information.
So it follows that as Warren Buffett showed in his paper "The superinvestors of Graham and Doddsville" (which you can find in the Appendix of Graham's "The Intelligent Investor") some managers have managed to outperform the market for extended periods (which, of course, is supposed to be impossible due to the efficient market theory).
And it also follows that mathematical types (engineering in my case) like me can find information imbalances to exploit. I mean, I don't even care about "expert opinions" or 90% of the statistics you and Agip argue about. I don't care that you think the market is heavily overvalued (as long as I can find stocks to buy yhat are not overvalued). All I care about are numbers and mathematical models that I can backtest so I can sell that sucker short when the trend reverses.
The market is most definitely NOT Pareto-optimal (just ask those people who bought subprime mortgage-backed securities in 2008).