Those who believe that the jury is still out on efficient markets hypothesis should read Warren .E.Buffett's talk given at Colombia University in 1984 commemorating the fiftieth anniversary of Value investing.
This is available as an appendice in the book " The Intelligent Investor" by Benjamin Graham 5th ed. It is also available in the 1984 Fall Issue of Hermes Magazine of Colombia Business School. Value investors have time and again proved that there are huge market inefficiency which can be used for phenomenal benefit by the use of many fundamental techniques of investment that on average have yielded genuine abnormal profits (read Buffett's article for more statistical evidence) As a practising value investor, I see many many instances of ridiculous valuations of companies (over and under valuation) all the times which can be turned into avenues of profit. Hence it is very difficult for me to understand how people can believe Efficient Markets Hypothesis especially when its assumptions are so flawed ( rational people, no information asymmetry !). There have been many scientific articles which have shown that many of value investing strategies work much better than indices. (see www.tweedy.com for some of the research). Lakonishak has also published a paper which shows that value investing makes more money than indices. I am never able to understand why there is so still so much heat generated to this day. I have a counter point. Can somebody first prove that the assumptions behind efficient markets hypothesis are true ? That today's man is no longer driven by greed and fear and is rational (at least when it comes to investing !!) ? That actually everybody knows as much about companies and no one has an information edge ? If this cant be proved how would a theory built on these foundations be true ? Koushik __________________________________ Koushik Sekhar Vermilion Value Advisers Director 91- 98202 28958 91-22-3643451 [EMAIL PROTECTED] 5th floor Baug-e-Sara 16 Nepean Sea Road Mumbai 36 India ----- Original Message ----- From: "Kevin Sachs" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Thursday, April 04, 2002 1:32 AM Subject: Re: Securities analysis > At 11:24 AM 4/2/2002 -0800, you wrote: > > >Information does not instantly get propagated to all participants in a > >market, so there are profit opportunities for those who study market > >patterns. > > > It is not necessary that all market participants be informed for a capital > market to be informationally efficient. What is necessary is that there be > some informed traders that will spot transitory mispricing and that those > informed traders be able to act on the information quickly (i.e., that > transaction costs be low). The jury is still out on the scientific evidence > supportive of or contradictory to efficient market theory. It is noteworthy > though, that evidence of market efficiency anomolies seldom demonstrates > the existence of trading rules that yield genuine abnormal profits. > > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ > Kevin D. Sachs, Ph.D. > Assistant Professor phone: 513.556.7198 > University of Cincinnati fax: 513.556.4891 > Department of Accounting/IS email: [EMAIL PROTECTED] > 302 Lindner Hall, P.O.Box 210211 > Cincinnati, OH 45221-0211 > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ >
