Burton Malkiel On Efficient Markets – Retire Sooner

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So let's maybe start with the efficient Markets and what that really means for Investors What it basically means is that Information gets reflected in prices uh Reasonably quickly uh that uh you know If there's A new cure for cancer that comes up and Uh in a pharmaceutical company gets Approval and that looks like it should Make the market value of that company uh 50 more than its current market value Because there are a lot of people around Looking for that sort of thing it will Reflect that information very quickly Without delay And uh that's the general idea it Doesn't mean necessarily that market Prices are always right because you know We never know the secure a new cure will It have side effects uh will uh uh will In fact the sales be uh the kind of Sales that were projected so you know Maybe the stock overreacts maybe it Under reacts uh uh you know we never Knows prices are never exactly right but The market does a reasonable job of Getting that information reflected Without biases one way or another now it Doesn't mean though that it's always Right in fact I've often said prices are Not necessarily always right in fact They're always wrong and sometimes the Markets go absolutely crazy uh as they

Did in uh 1999 and early 2000s when uh Amazon and Microsoft sold them well over a hundred Times uh earnings and even those Wonderful companies lost 90 percent of Their uh value uh when the.com as it was Called Bubble uh ended but nobody Nobody is able to predict this in Advance and and this is I think what uh You know a lot of people say oh gee Every it was so obvious that uh we were In a.com bubble well what people don't Don't remember is the person who coined The expression irrational exuberance was Alan Greenspan Uh and he coined that expression not in Uh March of 2000 at the peak of the Bubble but in 1996 and if you in fact Bought in 1996 uh you actually uh did uh Very well so I'm not saying that bubbles Don't exist and on the meme stock thing Uh I had mentioned GameStop uh and how Crazy it was that it double it was Making no money it doubled and then Doubled again well everyone knew it was Crazy yeah well Melvin capital a hedge Fund went in and shorted the stock uh And shorted it to such an extent that When it doubled again they went bankrupt So Sure the market gets it wrong from time To time but there is nobody And I mean this nobody who can Consistently

Do better than the market and the the Market usually gets it fairly right and Is awfully hard to beat and I think the Lesson is uh it's awfully hard to beat Have the core indexed and also Don't you dare try to time the market Uh because uh you got to be right twice You gotta be right when you get out you Got to be right when you get back in You'll never do that

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