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Berkshire Hathaway Inc. Message Board

  • davidyab davidyab Oct 20, 2010 11:36 PM Flag

    Efficient market question

    Here's a question for you thinkers out there.
    While we should all agree the market isn't perfectly efficient.....Is it more efficient today than it was 30 years ago?

    While human nature hasn't changed and there will always be pockets of inefficiencies for a good capitalist to exploit, I would take the side that it generally IS more efficient today than it was even a few decades ago.
    Why? Cause people (while not necessarily smarter) are less ignorant today about intrinsic value, more educated. Furthermore, information is far easier to acquire.

    So what does this mean to us?
    Maybe we won't see values like 1974 again.
    The subject reminds me of a Munger quote, telling a questioner that he may, "have to make money less the way he did it (Munger) and more like an engineer makes it".

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    • in terms of price discovery, the market is very efficient. price differences between venues get spanked before the photons cool.

      information dispersal is also a lot faster. everybody kows it at pretty much the same time. you don't have to wait for tomorrow's WSJ to find out why your stock spiked.

      none of this has anything to do with any kind of valuation. that kind of stuff is fairly irrational.

    • ".Is it more efficient today than it was 30 years ago?"

      Oh yeah! Just off the top of my head...
      1. We switched from fractions to decimals.
      2. Internet for info.
      3. Online trading.
      4. Lower brokerage commissions.

    • Imho, the market cannot be efficient, because people are irrational. Soros and Buffett - who have different approaches even if they develop from a similar base of understanding - both have said gold is a huge bubble. Yet people cannot get enough of it. Gold's momentum is building, not in any way reducing, in the teeth of proclamations from both multi-billionaire investor Buffett and multi-billionaire investor Soros that gold's run won't end well. People are social animals. The web of social feedback controls their actions. So basically imho Markets will be inefficient and irrational as long as they are controlled by human beings. The social webs control people, not rationality, because people are social and status-conscious animals - the better to impress that hot babe and get a mate and have offspring, at least amongst cave dwellers who recently mastered fire. On Wall Street the herd instincts will kill you. That's why Buffett moved to Omaha, and why I suddenly became financially much better after chemo fried me like the egg in the old antidrug commercial. Who knew all it took was moderate CNS damage?

      • 2 Replies to strat58cat
      • Two words: Financial Derivatives. Efficient market theory is a joke.

      • some great points, i appologize for my spelling but anyhow, i guess i'll add a few to it. the market today is better in my opinion because its at a true value recovering from ground zero from one of the worst financial storms. you want to own these strong stock, you have to own them, no, you need to own them.

        diversify your investments, buy low and if you sell, sell high but never sell low, so why do so many sell low?

        lets look at the gold issue, the gold issue, here is the fallacy. gold is high, alot of folks look at their portfolios and say, hmm, let me sell off this underperforming stuff that isnt doing well and lets buy the high priced gold, basically selling low & buying high,taking an immediate loss, the herd mantality. and those who bought alot of gold 30 ago, bought it when no one really wanted it, but now they are now selling at an all time high in order to take in profits.

        another scenario, bank of america began its foreclosre practice again, however folks griped but alot of investors are buying into these discounted foreclosures not to make a quick buck but that its dirt cheap. Also the fact that math tells us as the human beings, our population continues to grow, folks have to live somewhere, so in 30 years, boom you can sell all of those foreclosed properties to take in profits or rent them out to take in profits.

        gold, housing...lets see whats next, lets tackle a tuff issue, unemployment.

        fact is, alot of companies have posted great earnings, the local, state & federal governments are in need of money because they cant really tax the unemployed so with greedy eyes the local, state and federal governments salivate toward the piles of money that corporations sit on top of...the salivation will cause taxes. you will be taxed, it depends how you want to pay, either hire alot of folks and have the government tax these working folks so that your not taxed or begin to pay a huge tax for hiring none, pay now or pay later, but regardless your gonna pay...death & taxes my friends, they are gauranteed.

    • Question: How does an engineer make money?

      John Allen Paulos spends a few pages on the EMH in his book: "A Mathematician Plays the Stock Market".

      Some excerpts from page # 189:

      "In summary, if the Efficient Market Hypothesis is true, most investors won't believe in it, and if it's false, most investors will believe it. Alternatively stated, the Efficient Market Hypothesis is true if and only if a majority believes it to be false."


      "On the whole, most investors, professionals on Wall Street, and amateurs everywhere, disbelieve in it, so for this reason I think it holds, but only approximately and only most of the time."

      • 1 Reply to jad1148
      • Jad,
        Funny you mention that book by Paulos, as it currently is sitting on my stairs waiting to be put on the shelf.
        Got it at a used book store a few years ago, Not a great book in my opinion, however his "Innumeracy" book is one of my favorites.

        This engineer is currently making money running a couple laundromats and buying damaged foreclosures.

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