Market Philosophy and Mutual Funds

[DesertCat]

Warren Buffett wrote that efficient market proponents "observing correctly that the market was frequently efficient, went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day." He also wrote an essay debunking the efficient theory called "The SuperInvestors of Graham and Doddsville".

The old joke is that an economist won't stoop to pick up a ten dollar bill because if it really existed someone would have picked it up already. John Kay probably described it best when he wrote "Kay concludes, "The efficient market hypothesis is 90% true, and and you will lose money by ignoring it. The search for the elusive 10%, like the search for discarded $10 bills, attracts effort greater than rewards. But for the very few skilled searchers, the rewards can be large indeed."

The performance of actively managed mutual funds has been used to support EM theory (95%+ trail the market), but it's typically their high costs vs. index funds that hurt them, i.e. many mutual funds do beat the market, but not after deducting fees.