Investing Ep. 3: Efficient Markets are not Efficient | BeatTheBush

Markets are not efficient and are prone to human psychological behavior which leads to market bubbles and busts. When a piece of new is released, the market usually reacts immediately and the price of an asset settles after a finite amount of time. The point is it took some time to settle be it a few minutes of several hours. The information took time to reach each person and for them to process this information and make a trading decision.

Everybody this is beat the bush too and i talk about investments which happens to be your favorite topic on this youtube channel today we’re going to talk about a thing that they always teach you in finance markets which states that the law of efficient markets is efficient which means the asset price or the stock price will always reflect all the information that

Is known this means you cannot beat the market no matter what you do because if you go in with the knowledge that everyone else has you’re not gonna be able to predict that the asset price is gonna go up now this is on an average basis so you might be able to still buy an asset somewhere and then get lucky and then it’ll go up the thing it states is that you cannot

Do this on a consistent basis over a long period of time this theory of efficient markets was developed by a professor named eugene fam’ly in 2012 they did a study on all the mutual funds mutual funds are these assets classes of assets that’s bunched together professionally managed by people who went to school who owes who are supposedly very smart in that they

Should be smart enough to be able to pick things and get performance over the standard they found out that these professional managers essentially cannot outperform a set of assets where it was actually randomly picked but the point here is that they actually averaged the performance of all the mutual fund managers they didn’t pick out some of them who were able

To consistently meet the market the average thump yes if you average all the performance of everybody of course you’re gonna get average results that’s my theory here in saying that the market is really not efficient take a thought experiment for example let’s say a company is doing an announcement and they release it to everybody at once but some people are going

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To in fact get that information first maybe if they they are really on the ball they sit right next to the computer and they see this news saying that oh they made let’s say a hundred percent more profit that quarter suddenly the asset price jumps a lot just looking at the asset price is going to jump but then you know that the time it takes for that information

To percolate to every single person is going to take time so eventually it’s going to kind of trickle upwards a little bit more and more that right there shows that it’s not completely efficient because if it were once the piece of news release it would just kind of jump in in a very straight edged manner and stay there in most cases there’s no extra information

That’s released and yet the asset price would keep on going it’s not just me that is saying this i mean if you look at a lot of the warren buffett type of newsletter they’re shareholder newsletter they also believe that the market is not efficient otherwise you cannot take advantage of it and in order to profit from it now if you plan to be an average trader you’re

Going to get an average performance and if you think that you’re never gonna be able to outperform the market well why even try right so you should really just buy an index fund in fact an index fund let’s say the smp 500 in the whole history you get on average about 6 to 7% so the argument for the efficient market is that why even try why even bother because you’re

Gonna have some chance of outperforming on the market but also an equal chance of underperforming the market so why chance it and just buy an index fund and just receive the 67% of compounded annual growth which is over the whole length of you know like many many years of the smp 500 that’s the performance history so if you want 6 or 7% you can essentially just buy

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An smp 500 and just keep on buying it year after year or every single month you put a little bit more in you’re pretty much guaranteed 6 or 7 percent over the long term over the short term it might go down a bit but then if you just kind of wait wait it out and just keep on buying you will get your 6 or 7 percent the point here is that i believe you can outperform

The market i obviously don’t have enough history to say that i can outperform the market but look at all these managers that are trying what keeps you from trying to outperform the market of course you never know if you’re the next warren buffett or not unless you try right so the conclusion is this i believe the law of efficient market does not hold is actually

Inefficient there are times of overpricing of the asset and there are times of underpricing the asset if you’re brave enough which is something did you actually shouldn’t do is is if you think the asset price is over price way over price you may want to short their market but there’s a popular saying that the asset price that’s overpriced can keep staying over

Price longer than you can stay solvent in shorting the stock because if you short the stock and it keeps on going up you’re gonna lose money on it and then they would do like a margin call and you have to keep on paying and it’s saying that you’re gonna have to keep on paying until you have no money left and you have no margin of error and you’re essentially it

Will essentially go up so high that you’ll lose everything you have so shorting is a very dangerous business that’s on your own to decide if you want to do that or not on the flip side you can take advantage of the low side of a stock where people are actually under valuing it now if you partake in buying any kind of assets of individual companies then you are

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Essentially saying that the market is inefficient because you think that if you buy into it will essentially increase in price to the point where you think you can make more than the average fund manager which is better than randomly picking a stock so in order to pull off any crazy warren buffett type of investment where you make consistent gains you actually have

To believe that the market is inefficient so that they’ll allow you to take advantage of the low prices that comes around and you can buy it makes sense to me that asset price would be price low there is a lot of market psychology involved in one of my previous videos i showed that there’s market cycles where peep like to go kind of crazy when when asset prices

Go up there’s a bubble and then it goes down and when people run for their lives that’s actually when you should buy so the conclusion of this is that the markets are actually inefficient and you should really only try to buy into the stock market if you think you can outperform a randomly picked fund manager which is actually very hard to do so my wish is for

You to listen to this and take this opinion and kind of process it yourself and make your make up your own decisions about whether the market is efficient or inefficient so i’m interested if you think the market is efficient or inefficient after this video leave a comment down below to let me know give me a like over here and don’t forget to subscribe thanks for

Watching so i actually have a pile of gold coins over here i figured this is related to investing but these are actually chocolate coins and can eat them typically when you buy these from the supermarket be kind of tastes like plastic but not these these i got them at costco and this has a rich flavor to it your milk chocolate yeah i don’t have a link for you to

Buy them or anything but they’re pretty good

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Investing Ep. 3: Efficient Markets are not Efficient | BeatTheBush By BeatTheBush

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