Burton Malkiel: Markets Aren’t 100% Efficient But You Still Can’t Beat ‘Em

One can't beat the market, one is simply beating someone else at the game.

Telling people that they cannot beat the market is like telling a six-year-old that they cannot have fewer weeds in their lawn than any of their neighbors. The six-year-old doesn’t want to believe it. Neither do people on Wall Street. And the six-year-old is right. You have control over using your eyes to do due diligence to determine what is a weed and what is not and can use your mind and have control over what to remove and what to keep and can do better than Burton Malkiel.

What about the greater fool postulate. Stock markets assume there is always someone dumber to sell to. This is why I no longer buy stocks. If you do not know who the idiot is on the other side of your trade, then its is you.

I jumped into the market head on in March 2010. Had a lot to learn and every day I learn some more. However, I have followed the advise and philosophy of investing recommended by Cliff Pletschet, now deseased. My portfolio value has increased by 12% I watch the market dayly and try to keep up with national and international news. It is work. I like it! I'm encouraged.

actively managed mutual funds may not be the best investment. That being said there have been many, many, hedge funds that (free of the constraints that are placed on mutual funds) make a lot of money. There have of course been well known investors (Warrent Buffet being the best known) that have beaten the market. No you can beat the market, you just have to be an astute observer, and understand proper hedging

Buy low, sell high. It is that easy!

Did Bill Gates, Warren Buffett, George Soros, accumulate huge wealth by buying and holding the S&P 500, or did they beat the market? Professor Malkiel suggests buying the S&P is the best investment strategy and the tech ticker reporters simply nod their heads.....ridiculous! Does his strategy prevent the average investor from panic selling when the market dips 50%.....NO! Does his strategy take advantage of periods when certain stocks are depressed and a large percentage of cash is needed to take advantage....NO! Just another example of a below average, outdated academic wasting the airwaves on tech ticker. C'mon guys, your show is called tech ticker!! Blodget looked giddy! Henry, why don't you go teach a class on financial markets! Maybe they'll give you a raise and you can invest the salary bump in the S&P!

The essential flaw in this theory is that it descibes the totality of behavior vis a vis the market and ultimately says nothing. The average investor by definition can't beat the Market because he makes the Market, ie, sets prices by his actions. But this does not prevent very stupid behavior from being common. Birdbrains may sell because of sunspot activity or because Greece needs 139 billion. By the way , the latter caused the collapse of the EU this Summer- in case you have been scrying (astral travel). Also, the available information seldom predicts the future and that is what we are trying to do when we value stocks. I did this twice here when I bought XOM on 10/12 and CSCO recently two days before it began to move. I'm sure you can still find my postings saying that anyone who didn't buy CSCO with me needed electroshock therapy. Since then I have been telling people that all they have to do this year is listen to me and do what I say. I have explained on Greenhaus site why I am very bullish on global large caps this year. Before you td me, I'm the guy who told peeps in a hundred postings since April not to sell, the Market would come back so fast your head would spin. I reaped a rich harvest of tds for that. But it's all good, my homies. I'm in the black. As for those who mocked and reviled me, woe unto them. I can imagine their lamentations, the gnashing and wailing, the rending of garments. All I can say is, boo hoo, you've got me crying for you.

Malkiel understands nothing. In April birdbrains fled the Market based on the news of the imminent collapse of the EU causing the Minicrash. Only a complete ideot could believe this. Ken Fisher, Forbes. This was the major event of 2010. Another important lesson from 2010: When the Market is routed all the nutcases come out of the woodwork and start kicking it while it's down. I fought this boo alone: inflation, deflation, crosses, derigibles, two headed monsters,the Baltic index, sunspots, Qe1, the debt. I suppose this is all "available information". Fair valuation based on available information my derierre. The Market is an insane asylum.

An efficient market is one in which assets are fairly priced according to the information available, and neither the buyer nor seller has an advantage. However, it also assumes, a lack of emotional forces such as fear or greed. Therefore, other considerations besides fair price are important to the function of markets. For instance: a low volatility market is an unhealthy one. A healthy market is one in with volatility, but not neccesssarily fairly priced. Shouldn't we then endorse the notion that a healthy economy and market do not tend toward equilibrium?