During discussion about things where you had strong opinions and then changed your mind, someone mentioned EMH. Do you believe in EMH and if so is it strong or weak version?
I used to believe EMH but not strongly. The pandemic changed my view because I managed to invest some money when the stock market dived and was clearly influenced by overly pessimistic view of the impact of covid. Some might argue that the market reacted to the irrational government measures, so it is not that the case that the market was mistaken. I still think that investors were equally irrationally pessimistic. I reject the view that this is a hindsight and I was merely lucky. I am not big expert and I did not possess any proprietary information. I had the same information as everybody else, I just didn't let my emotions take over me. This is further confirmed that even today when all the events have passed exactly as predicted, majority of people still maintain their mistaken views that covid was very dangerous to young and non-risk population.
It is the only time when I saw the rest of the society to be so wrong in their views and clearly this was my once-a-lifetime chance. I haven't see any other opportunities for easy money so far but I think that people who are experts in their fields and investors might have been able to find more opportunities.
One of them was found by Michael Burry who definitely saw that the 2008 financial crisis was coming. He wasn't just lucky because he had read and analysed all the documents and had to create special investment instruments to profit for it. In this way, it wasn't easily accessible by laypersons like me who have no time or understanding about investment. Again, most professionals were blinded by collective frenzy.
What is your opinion about EMH?
Jump in the discussion.
No email address required.
Notes -
I think the EMH is basically true under most "normal" conditions. It can be false in cases where the market has failed to "price in" a certain piece of information (as with your pandemic crash example), or in cases where there is some large enough distorting factor which the broader market can't correct - an example of the latter case would be the whole thing with WallStreetBets and GameStop. Not an example is the thing with WallStreetBets and Bed Bath and Beyond (BBBY) -- because they are creating new shares of their meme stock to sell into their expected bankruptcy, the market is able to act on the information it has there to extract money from uninformed HODLers.
Maybe. Momentum effects possible exist which may run counter to the EMH. I think if a stock break out with huge volume and tons of hype, like with GME in early 2021, the odds are probably greater than 50/50 of it continuing.
More options
Context Copy link
Wouldn't meme stocks be a case of market manipulation, except that it is not done by a one person or a coordinated group of persons but by a more loosely group?
The problem of "normal" conditions is that you cannot define them in advance.
My understanding is that legally, meme stocks are not a type of market manipulation -- you are allowed to own shares "because you like the stock".
But yeah, I think the truth or falsity of the EMH is a figure/ground style of thing. Some people hear "anyone who can predict market mispricings at better than chance levels can make a ton of money" and conclude "and therefore it's not possible in the general case" and others hear "anyone who can predict market mispricings at better than chance levels can make a ton of money" and conclude "and since I see a market mispricing, that means I can make a ton of money".
And the market prices are made out of the assessments of the second kind of person.
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link