I know I'm going to get my ass verbally kicked for asking this in here, but....... What are your thoughts on the efficient market theory? If you take a side, please cite a reason why, thanks
Trading is useless for those who lose money... I think that is pretty obvious Efficient market theory sounds nice when a professor who never trades sits in a college somewhere teaching out of a book in a theoretical world puts up pretty charts and graphs of utility theories and horrible research statistics on trading histories.
there is a rumor that samuelson claimed publicly that he would make a killing trading the commodities markets. he lost his money, and then came up with efficeint market hypothesis to explain why he lost his money.
Traders are in the business of manufacturing price information. Those who do it well make money. Think about it -- the only way you can make money is to help price to get where it's supposed to be.
Definition: The (now largely discredited) theory that all market participants receive and act on all of the relevant information as soon as it becomes available... http://www.investorwords.com/1672/Efficient_Market_Theory.html The theory is assuming the perfect market condition where investors known ahead of time the supply and demand therefore profit potential; it doesn't apply to trading since we are trying to predict the market movements plus the fact that the market is also being manipulated by short plays from various investors, therefore the market is not as easily predictable.
Sheeesh. I come up with new theories why I lose money every day! Maybe I should teach college finance lol..
fallacies with EMHhypothesis 1) that traders (and market participants in general) act RATIONALLY. iow, EMH does not take into account EMOTIONS- fear, panic, greed, euphoria, etc. ANYBODY who has ever traded has seen how emotions can affect trading decisions. 2) that price is merely the digestion of all public data (and in the case of insider trading, private data) available on a company and its security. clearly, all one has to do is look at ANY bubble, or overreaction selloff to see the fallacy that people are merely acting on information. to a large extent (moreso on shorter timeframes, where traders (vs. investors) tend to lurk- in the shortterm people act based on what they think others will do. the only reason one goes long on anything is because they others will do so after them. because that is the only thing that will make the price go up. demand exceeding supply EMH is a classic example of how "smart" educated academics can circle jerk each other for years over theories that have no basis in reality.
Why do 60% of mutual fund managers underperform the S&P 500 by an average of 3% each year before fees?