Efficient markets

There are three broad dogmas in finance:

  • That markets are efficient
  • That markets are inefficient
  • That it does not really matter whether markets are efficient or not

At any one time, I have been known to hold one, two or all three views. Depending which site or book or article you read, you will typically find one of the first two views held so dogmatically that you would think any one crazy to believe in its opposite. Generally, this is accompanied by some logical consequences. e.g. if the market is efficient, you cannot make money from its inefficiencies, at least not in the long term. Or similarly, if the market is inefficient, a long-term buy and hold approach to stocks simply cannot work.

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