[throw0101a]

> Warren Buffett's annual letters

Buffett says to buy index funds.

> Actually, anything by Ben Graham or Joel Greenblatt is worth reading if one is interested in the investing world.

Ben Graham in the last interview before he passed ("A Conversation with Benjamin Graham", Financial Analysts Journal, Vol. 32, No. 5 (Sep. - Oct., 1976), pp. 20-23):

>> In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?

> In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.

* https://www.tandfonline.com/doi/abs/10.2469/faj.v32.n5.20

* https://www.jstor.org/stable/4477960

* https://www.bylo.org/bgraham76.html

Graham was also of the opinion that analysis is of questionable use even in 1976 (nevermind now, ~40 years later).

[assemblyman]

zipy214 below has given much more eloquent explanations about the non-applicability of the EMH than I can. For me, the vast majority of my personal savings are in index funds. The reading list above, even if the methods are outdated (the broad details still apply even though many ways of analyses no longer apply especially to tech stocks), are mainly to get the curious started on one principled path to investing with the caveat that, if they do experiment, they should do so with amounts they are willing to lose.

Just one more comment to what you said below:

"If you personally believe markets are not efficient, and prices are not accurate, then perhaps you should take up day trading."

Value investors famously oppose any kind of day trading or "in and out" trading. People like Phil Fisher used to advocate never selling unless the fundamentals change drastically (change of management, new technological developments that make a company's products obsolete etc.). Of course, one doesn't have to be that extreme but equating value investing with day trading is misleading.

[zipy124]

More recent analysis has many things that imply the EMH is weak if it exists at all.

2008 at it's core is a rather good example that the market was not efficient at all, as was the dot com bubble. And then you have the behavioural side where investors are not rational such as meme-stocks. Even COVID was a good example. It was clear to most value investors for instance that Zoom was over-priced, when you had teams already included in your bundle, and that school wasn't going to stay remote forever. The failure of MOOCs in the previous decade proved that. There are many examples like these.

[throw0101a]

If markets are not efficient, that means prices do not reflect the information available about various financial instruments (e.g., stocks). So if information is not being properly disseminated and processed, it means it should be easy to swoop in and outperform The Market™:

* https://en.wikipedia.org/wiki/Grossman-Stiglitz_paradox

This is how some folks (see The Big Short) were able to make a killing leading up to the GFC: they properly processed the information and traded on it.

And yet if you look at something like the SPIVA reports, yes there are some funds that may outperform the market in a single year, but the numbers drop quite quickly for being able to outperform over 3/5/10/15/20-year horizons.

If you personally believe markets are not efficient, and prices are not accurate, then perhaps you should take up day trading. (I am not sure anyone is saying markets are perfectly efficient, or efficient-ish all the time: certainly not Fama or French, who won the Nobel for work on the topic; shared with Shiller).

[deaux]

> If you personally believe markets are not efficient, and prices are not accurate, then perhaps you should take up day trading

What does it mean for a price to be accurate? Most think of it as representing future revenue and profit. Anything else quickly gets you into tautological territory of "an accurate price is what the market thinks it's worth".

I don't think the belief leads to your conclusion. It's beyond doubt that the price of TSLA does not accurately represent the value of the company in terms of future revenues and profits relative to how other stocks are priced. Does this mean I should take up day trading? Definitely not! We don't live in an era where prices are guaranteed to eventually return to being accurate, any more so than if they were a random walk.

And even under the presumption that they would return to this, there's always the 'Markets can remain irrational longer than you can remain solvent'.

[zipy124]

The paradox given is an argument against perfectly efficient markets. The paradox is that if the market was efficient, then doing market research would be a loss-making activity always, meaning people wouldn't spend money to collect the information, thus making the market in-efficient.

Secondly, only a few percent of trading used to be done off-market. As of this year, more than 50% of all stock trades happen in dark pools, outside of the market, creating in-efficiency by definition, since the information is hidden from the market. The rise of passive investment also increases in-efficiency, since those buyers do not care how much the stock is worth, they simply buy the weighted basket.

Further if you are looking at funds, they are limited from being able to exploit in-efficiencies by design, since they are vulnerable to the main cause of inefficiency in the market which is the human psyche. For example if investors get scared and take money out, it forces them to liquidate at bad times, and if they put lump sums of money in, it forces them to capitalise even when it doesn't have good opportunities to trade on. Finally the size they operate at by definition distorts the market, thus meaning there is a limit on the size of bets they can make without reducing their alpha.

There are many traders with long-term track records that beat the S&P 500. Even Buffet, who famously recommends index funds for the average investor, has stated he doesn't believe strongly in the EMH, and obviously invests berkshires money in non-index funds, and over the past 60 years has beaten the S&P 500 handily, although it should be noticed as they have got bigger, they only beat it by a percentage point at best if at all, since any trade they make is so large that they distort the market heavily. Even so they show you can beat the market by going long. Also Charlie Monger his buisness partner seems to somewhat believe in a weak EMH.

In the medium term it is trivial to disprove the EMH, since we have now had COVID bubbles, the 2008 bubble, the dot-com bubble, the railway bubble etc.... All of which are practically impossible even if you only believe in the weak-EMH.

Finally quant firms pretty much prove that they aren't efficient on a short term basis either (though this is almost never disputed as you say!) since volatility existing is exactly this short term inefficiency and where they make a lot of money. Technically they are part of that restoring force that makes the market efficient theoretically.

A more accurate EMH would be something like "A stock is worth approximately what most people think it is worth at any one time". That is it is approximately efficient in regards to peoples perception of value at that time, as opposed to it's actual value. This is like the EMH rather tautological or even circular though, since this is literally the definition of the price of a stock.

In regards to me taking up day trading if I believe markets aren't efficient that is not the case. You can believe markets are not efficient without being able to find the in-correct prices yourself. You can also even believe markets are not efficient, and be able to find the in-correct prices and still struggle to make money because timing when the market corrects its in-efficiency is even harder, because the market can stay irrational longer than you can stay solvent.

And finally the classic joke:

Two economists are walking down the street when they pass a dollar bill on the ground. The first economist says “Hey there’s a dollar bill laying on the ground!” The second economist scoffs and says “No there isn’t, if there was, somebody would have already picked it up.”

[tome]

> 1976 ... ~40 years later

I think it would have been ok to say 50!