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?
Cash never makes us happy, but it's better to have the money burning a hole in Berkshire's pocket than resting comfortably in someone else's.
I think you should read everything you can. In my case, by the age of 10, I'd read every book in the Omaha public library about investing, some twice. _x000D_ You need to fill your mind with various competing thoughts and decide which make sense.
The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
Oneβs objective should be to get it right, get it quick, get it out and get it over. Your problem wonβt improve with age.
Investors have few spare tires left. Think of the image of a car on a bumpy road to an uncertain destination that has already used up its spare tire. The cash reserves of people have been eaten up by the recent market volatility.
But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
Market timing doesn't work. If all the bubbles and all this mispricing really exist, how come so few people see it before it turns out that way?
Everyone recognizes that's a joke because obviously the number and shape of the pieces doesn't affect the size of the pizza. And similarly, the stocks, bonds, warrants, etc., issued don't affect the aggregate value of the firm.
The borrowers will always be willing to take a great deal for themselves. Itβs up to the lenders to show restraint, and when they lose it, watch out.
A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.
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