Efficient market theory is one of the key theories of modern finance. It challenges the concept of value investing.Widely taught in all Ivy league universities, it says that its impossible to beat markets consistently as markets are super efficient in capturing all the relevant and latest information and events Therefore no living mortal can achieve better returns than market consistently.
Many of the big investment gurus have scoffed at the efficiency of the market .
Warren buffet once said that “if markets were so efficient as the academicians would like us to believe , then I would have been a bum sitting with a tin cup”
Graham once said that “market was a voting machine in short term and weighing machine in long term”. That means markets are unpredictable in short term but eventually prices the value of the assets right in the long term.
He likened market to “manic depressive” guy who had frequent bouts of extreme mood swings and was either very ecstatic or depressed on a given day. He called the guy “Mr Market”. He taught his numerous disciples that if you get carried away by Mr.Market’s wild mood swings , you are doomed as an investor. However , if you learn to exploit his mood swings in a wise manner , you would be a winner.