Academia

[14value]

Do teachers at our schools still push the asinine idea about efficient market theory?  On the one hand I hope they don't, it just does not make sense and the kids believe it because the teacher told him/her so. On the other I hope they do.  It provides us opportunities.

[eclecticvalue]

Yes they still do.

[stahleyp]

Yes, I was taught it in undergrad and grad school (not too terribly long ago). It took me a while to unlearn it all (At certain times it still gets me though!). :P

[Guest deepValue]

I graduated one year ago. EMH was taught but its shortcomings were openly discussed. However, modern portfolio theory was taught as gospel; of course, MPT assumes the market is efficient.

 

My conclusion was that my professors -- two of whom had managed billions of dollars before downgrading to academia -- had no idea what they were talking about.

[stahleyp]

In all fairness here, I would also say that unless one is willing to contribute a significant amount of time (like most of us do), EMT and MPT are really some of the better ways to invest. You'll do much better than most people by following them. The average person does not have the patience or resilience for value investing. If we're looking to help the average person be successful, I don't know of too many ways better than following EMT and MPT. It's basically about reducing volatility and time spent investing.

[bargainman]

I agree that EMH is probably one of the best ways for the average investor to invest.  Even Buffett says most people should just buy an index fund.  People could do a *lot* worse than buying a cheap index fund via dollar cost averaging.  In fact many people do do a lot worse by trading in and out of stocks and mutual funds.  There are countless studies showing that the average manager underperforms, in fact I think it was 70-80% who underperform.  So if you go that route you're stuck trying to discern which 20-30% of managers will outperform.  There are also studies showing that the average mutual fund performs better, by a large margin, than the average investors in the same mutual funds, since people pile in when the MF outperforms and get out when it tanks!

 

I think the market is very efficient, just not completely efficient.  For most people if they are taught EMH which IMO is about 90-95% correct, I think that's just fine.  I don't think it's 'asinine' at all.

[Palantir]

I think it is broadly correct, especially in liquid sectors of the market, I think derision against the EMH goes overboard. It is essentially an idealized model of thinking about the markets, don't think it's gospel.

[beerbaron]

Well EMT on the strong form is ludicrous but on the weak form I think it's bang on.

 

BeerBaron