Observing that the market was FREQUENTLY efficient, EMT Adherents went on to conclude incorrectly that it was ALWAYS efficient. The difference between these propositions is night and day.
Interpretation
The quote highlights the misconception that just because markets can be efficient at times, they are always efficient.
Warren Buffett points out a critical misunderstanding among adherents of the Efficient Market Theory (EMT). While it is true that markets can show efficiency in their operations and pricing, it is a mistake to assume that this efficiency is constant and universally applicable. Recognizing the difference between occasional efficiency and perpetual efficiency is crucial for investors and analysts, as it affects how they approach market dynamics and investment strategies.
In practice
This quote can be used in an investment seminar to illustrate common pitfalls in market analysis.
I have no views as to where it will be, but the one thing I can tell you is it won't do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money and there will be a lot - and it's a lot - it's a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.
If the world couldn't see your results, would you rather be thought of as the world's greatest investor but in reality have the world's worst record? Or be thought of as the world's worst investor when you were actually the best?
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Oneβs objective should be to get it right, get it quick, get it out and get it over. Your problem wonβt improve with age.
All the math you need in the stock market you get in the fourth grade.
Your priorities, passions, goals, and fears are shown clearly in the flow of your money.
We make too much out of past performance, and it's very misleading to investors. It causes them to move money around. They buy a fund that's hot and then it turns cold as all hot funds eventually do. And then they get out. Well, buying at the high and selling at the low isn't going to leave you a satisfied shareholder, right?
By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives.
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