Efficient Markets.. TAN15 Apr 2007 12:53
RDS. My final word on Efficient Markets. The theory, and it is a theory, and one I belive in, has been tested extensively to see whether there is any currently available information that would allow investors to systematically earn above average returns. The vast majority of all empirical studies conclude that there is no readily available information that the market neglects. I invest having taken this theory as I believe the market has already used all relevent economic information correctly,and on board as it became available. It is already in the price. No market can foresee catastrophies but once they arrive the market quickly adjusts share prices very quickly and as investor emotional trading kicks in so does the market and prices shares on a supply and demand basisI agree with bubbles etc etc The classic was the South Sea Bubble of 1720, then Internet Bubble et al, the fact is we investors buy and sell shares on current available information, even if that information second guesses the future, I accept that, what we cannot anticipate is the future not going to plan, but even then the market is so efficient the market adjusts share prices so quickly the investor is on catch up everytime. I believe that catching a tiddler share that has the potential to grow before the market catches on, there are undervalued stocks to be found but not by looking at historical data but a growth trend in the making.