If anyone had any notion that the markets were efficient or rational in any way regarding the actual underlying value of the companies they purport to represent, I certainly hope that notion didn’t survive the pandemic - I’m not sure what world stocks were pricing in over the last two years, but it didn’t pass even a cursory smell test.
Nikola, a vaporware company with absolutely 0 revenues burning $600m / year, is still "worth" $3b.
HKD, a vaporware company, is being pump and dumped and is now "worth" $150b+, the size of Bank of America, despite being 50 employees with nothing of value.
The only way I can understand the Efficient Markets Hypothesis is as a way for academic economists to explain why they personally have not gotten rich trading stocks.
I assume you mean they don’t put much stock in the strong EMH - Which is true, but the concept is the underpinning of most risk-weighted investing and some form of it (eg weak or semi-strong EMH) lines up nicely with why index funds outperform on a very broad basis.
I’m trying to think of a good analogy to CS.. maybe “Good engineers don’t put much stock in artificial intelligence”
It's a really approachable theory and contrary to what you'll read in tech message boards - doesn't remotely boil down to "the market can't be wrong". Burton Malkiel (economist most famous for writing "A Random Walk Down Wall St" and being a longtime advisor of Vanguard) has a paper talking about the early 2000's pushback.
It gives a good summation / spells out some critiques / offers his reasons for disagreeing:
the market is the most efficient place you can put your money, and the companies that underlie the market are the greatest stores of value with the best growth opportunities we know of, and the pandemic didn't change that.
Dying to hear where else you suggest putting investments...?
If one believes the current market is bogus, then it is quite possible to move money into hard/sticky assets. Real estate is the prime example of this, as it’s in everyone’s interest that real estate not crash too hard. Similarly bonds
Big question to ask if you are betting the market is bogus is whether the market will stay bogus while your “safe” asset stays flat.
Yes, the market is very efficient at losing money as well by punishing foolish people that believe the market is only efficient at making money. Buy, buy, buy!
If anything, the current situation is a demonstration of the opposite. The claim that markets are efficient and rational is based on long term price finding. This includes a lot of noise. If Peleton never makes a profit, the market will eventually find the correct price.
