Penny finally drops on the "efficient market" hoax.

marketwatch.com/news/story/A … aspx?guid={D20C36CA-47D0-48DC-A2E8-1A4D6CA9924A} (url.ie/1c3i)

The EMH was always rubbish. If markets were so efficient there wouldn’t be so many people working in finance.

Larry Elliot (Guardian) wrote a book called ‘The Gods that Failed, How blind faith in markets cost us our future’.

The term financial engineering was the one that made me laugh, I mean WTF?

The whole basis for trading (fundamental/technical/runestones) is that the markets are not efficient and that whatever crackpot theory you’re following is giving you an edge over the rest of the market.

Effiicient markets cannot happen when there is fiat money.

Money erosion began in 1913 with the creation of the Federal Reserve.

The next rot was the confiscation of Gold in 1933.

The final destruction was Nixons total break with gold to pay for the lunatic Vietnam War.

Ever since it has been a game of monopoly.

Dunno about this gold hype, Spain found loads of it and had 400% inflation in one century. They increased the money supply (gold) without increasing the amount of stuff it could be spent on.

Lots of people work in gambling & religion, what sort of conclusions does you axiom draw with those?

EDIT: If you don’t believe in the EMH then don’t invest in index funds. I’m sure there are plenty of well performing money mangers out there making loads these days that you can give your money to.

Investing and gambling are one and the same, always have been and always will be IMO.

Good investors or gamblers weigh up the odds of something happening and if they are different to the odds being offered by the market/bookies/poker players you place your bets accordingly.

Religion is another matter entirely

You forgot the final entry: 2009 - Peak Gold Buggery.

The markets ARE currently attempting to work as per the Effective/Efficient Market model. The problem is that the politicians won’t let the dead wood out of the system and that is adding to the problems. Left to their own devices we would have the demise of the financially damaged institutions. Yes there would be significant job losses too, but it looks like we’re going to get them anyway, just not in the broken banks.

The time when the the markets were broken was the run up to the “bust”. The bubble itself (and our politicians were cheerleaders for it), caused by the over valuation of assets and the mistakes around risk were the root causes of the problems.

I’m not suggesting that having the political classes step back would necessarily hasten the return of a growing global economy, but I doubt that their intervention and fixation with retaining and salvaging damaged banking and industrial institutions will speed up the recovery.

Better regulation is required all round to avoid bubbles, not to retrospectively intervene in busts.

Blue Horseshoe

The reason markets do not work efficiently is primarily because the traders basing their decisions not just on whether or not the assets they are trading are of practical value (necessary to produce things or meet consumer needs), but on what they think their fellow traders will do next.

It’s a giant game of bluff and double bluff. The traders buy, sell short and long on assets based on what they think the other traders will do based on what information they think the other traders will act on, and the other traders are doing the same.

People ignore ‘the fundamentals’ and buy stocks and commodities that they know are overvalued (in terms of the actual wealth they can generate if they are put to practical use) because they believe that other traders will be fooled into buying them at an even higher price.

The market is one giant psychological experiment where prices bear little more than a coincidental relationship with the real value of the commodities they are trading.

In the words of the man himself, “In the short term the market is a popularity contest; in the long term it is a weighing machine.”

You can believe that investing and gambling are the same but I think you’ll be looking a long time before you find a roulette table that is stacked in your favour.

I don’t believe anyone proposes markets are maximally efficient, merely more efficient than the alternatives.

There are loads of people who propose that, we call them libertarians.

Nobody here, including the “strategist” quoted in the article is correctly describing the EMH.

The EMH covers all types of market information assumptions, including those where information is priced with lags (i.e. you can trade profitably from old information).

It is a tool for analysis and understanding and recent events do not make it any less important or useful.

Nobody with any credibility then :smiley:

I see this kind of thinking all the time - pointing to the flaws in something to demonstrate why it shouldn’t be used (whether it be a type of political representation, technology, scientific theory or whatever). Pointing out the flaws are great but a superior alternative needs to proposed and when it comes to free market economics nobody has yet.

If there are “loads of people” who propose that, can you give me a list?

As for “libertarian”, it means a bunch of things. I know lots of people that might be called libertarian and they do not believe in maximally efficient markets any more than they believe in perpetual motion machines.

Markets are efficient, but without perfect knowledge and perfect rationality and perfect agreement on value and perfect alignment on investment goals they cannot be perfectly efficient. Markets are more efficient than the alternatives for most goods or services, and market failures are reasonably well understood.

The idea of perfectly efficient markets has long been the topic of jokes even among people who believe in efficient markets, e.g. “What would a Chicago economist do if he saw a $10 bill on the street? He’d conclude he was having delusions because if there was really a $10 bill on the street someone would already have picked it up.” Doh.

In a century? That’s an annualised inflation rate of 1.4%. ECB wouldn’t be too sniffy at it.

In the modern era no, but back then it was unimaginable super-duper megahyperinflation. Prices were generally stable (barring war and natural disaster) throughout the medieval period. The 17th century is when the modern system made its earliest appearances and everything changed.

This is why some opponents of fiat money are so obsessed with gold and the Guild system - it delivered generally stable prices over a period of hundreds of years. Course, it had plenty of massive flaws too! I don’t really think massive inequality, serfdom, grinding poverty for the vast majority, ignorance and superstition, regular famines, slow rate of innovation and a system deliberately and overtly putting VIs in complete control is really worth the stable prices benefit…

The “market” itself is not a coherent organic entity, but more a study in human psychology and heard mentality. Understand that and you start to grasp the true “fundamentals” of the market.

Your average market trader (stocks, treasuries, commodities or whatever) is no smarter or dumber than your average computer programmer, architect, marketing exec, teacher or anyone else who holds a third level qualification. Certainly, quite a few hold higher level qualifications, but, having met a few, the ability to leap from reciting the theory to utilising it in a practical and useful application eludes quite a high proportion of them.

Still the levels of bravado and greed or fear and caution about the place are pretty decent metrics to use in assessing the direction of the market. Either side, the desire to be popular will amplify the positions.

That said, without outside interference, the markets, when operating correctly, should trend and tend towards what is considered a “fair value”. When the markets break, they either overvalue or undervalue assets and/or miscalculate risk, but this should only be temporary. However, in the new information age, hype and spin travel just as quickly as fact. And when enough people start to believe the hype the market rises. It is a determined individual who will stand their ground in such a situation, point to the facts that “the king in naked” and remain outside the bull run/bubble.

Unfortunately “Markets can remain irrational longer than you can remain solvent.” And in the case of the average market trader, possibly longer than your employer may toleration your falling behind the market trend.

Blue Horseshoe