Market Inefficient enough for Fundamental Stock Investing?

Discussion in 'Strategy Development' started by short&naked, Jan 22, 2009.

  1. Does anybody here use a fundamental strategy (a la Buffet, Graham, Lynch) to pick stocks? Have you been beating the market consistently?

    It seems to me that even though the market efficiency hypothesis may be correct in certain respects, it can at least be said that it holds up the least during times like these. I am sure that there are companies being sold off out of fear. But how do you identify them safely?

    It seems more like gambling to me (predicting whether a company will grow or go out of business) where as traders only trade what they see.

    And now with ETFs, stocks seem even riskier by comparison.

    Any comments from investors who have successfully been picking stocks this way?
  2. 1) The proper conclusion is that the (EMH) efficient market hypothesis is a delusion.
    2) The EMH "works" in a bull market primarily because stock prices are increasing and maybe, just maybe, fundamentals are "improving" also.
    3) You can use fundamentals to determine the "historical cheapness" of a stock but you have to keep in mind that the stock can still get cheaper AFTER you buy it.
    4) You could try to pair-trade similar companies with slightly different fundamentals but you have to keep in mind that there is no law that states that the company's values have to converge.
  3. The proper conclusion, is that the market is very efficient, although it has a "drift" - it tends to have trends.