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I just don't buy the efficient market theory. Everyone interprets the same information differently, and the market is nothing more than an aggregate of perceptions, some better than others.


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I have a few inconsistent impressions regarding efficiency of the stock market based on practice and experience. On the one hand, review the price history of JDSU and tell me those are efficient or meaningful prices with a straight face. It's silly, but then again in a way it makes sense if you view the spot price not as the most accurate forecast in the world, but (to restate the same claim in a different way) as an essentially random guess that is no worse than any other random guess. No one has any idea what Uni had coming twenty years down the line and there was no way to know. It's all noise.

also, I'm not sure if you can make the price efficiency argument non-tautologically. you can't ever take one price of JDSU and derive the rational price t-1. any price at t-1 is rational on some set of probabilities assigned to the scenarios, and the scenarios are limitless in their range. and if any price is consistent with any subsequent price/ outcome, calling it "efficient" is meaningless. but of course economists are fond of tautological theories.

And I'm pretty convinced by and sympathetic to Malkiel. I believe that the best personal investment is an index, and that the only rational way to invest is to diversify with broad based indices, avoid market timing, and most importantly, avoid transaction costs.

But then I know hedge fund managers that friends work for that have beaten the market consistently for years. They don't do any technical analysis BS, and they don't prognosticate about the big picture. They focus very very narrowly. One just on a certain segment of energy production companies. He knows their companies better than they do. he mostly trades pairs. the second guy I know only trades deals and special events. when there's a court case pending, he's going to have the judge's home number and whether his kid missed school.

I don't know how to reconile these viewpoints. maybe the idea is that the vast majority of what is out there is noise. and real research, by competent people is rare and can work. I don't know. or maybe those two guys just got luck, on a hot streak.