Quote Originally Posted by Shrewd Crude View Post
Phaedrus, I have a question.......Do you think that Markets are efficient, or inefficient?
Inefficient.

The Efficient Market Hypothesis is an academic construct that was debunked in the 1980's. It implies that share prices adjust to publicly available new information very rapidly and in an unbiased fashion, such that no excess returns can be earned by trading on that information. In its Semi-strong-form at least, this implies that neither fundamental analysis nor technical analysis techniques will be able to reliably produce excess returns. We know that this is simply not true. John W. Henry, Larry Hite, Ed Seykota, Richard Dennis, William Eckhardt, Victor Sperandeo, Michael Marcus, Paul Tudor Jones and many others have each amassed massive fortunes via the use of technical analysis and its concepts. Buffett and others have employed fundamental analysis with spectacular success.

The developing field of Behavioral Finance studies market inefficiencies such as underreactions or overreactions to information as causes of market trends, bubbles and crashes. Such misreactions have been attributed to limited investor attention, overconfidence, overoptimism, mimicry (the herd instinct) and noise trading. Other key observations made in behavioral finance literature include the asymmetry between decisions to buy or sell (the "bird in the bush" paradox) and the strong loss aversion or regret attached to selling shares at a loss. (Genesove & Mayer, 2001). We all know about that one. That's why Stop Losses are so unpopular!