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Espejo, Kristal Joy M. August 25, 2015

BSAccountancy 5 11:3012:30 !!"S

Myth 1: EMH claims that investors cannot outperform the market. Yet can see that some

of the successful analysis is able to do exactly that. Therefore EMH must be incorrect.!

Accor#ing to t"e EM$, as prices respon# only to in%or&ation a'aila(le in t"e &ar)et, an# (ecause all

&ar)et participants are pri'y to t"e sa&e in%or&ation, no one *ill "a'e t"e a(ility to outpro%it anyone

else.

+n e%%icient &ar)ets, prices (eco&e not pre#icta(le (ut ran#o&, so no in'est&ent pattern can (e

#iscerne#. A planne# approac" to in'est&ent, t"ere%ore, cannot (e success%ul.

!"is ran#o& *al) o% prices, co&&only spo)en a(out in t"e EM$ sc"ool o% t"oug"t, results in t"e

%ailure o% any in'est&ent strategy t"at ai&s to (eat t"e &ar)et consistently. +n %act, t"e EM$ suggests t"at

gi'en t"e transaction costs in'ol'e# in port%olio &anage&ent, it *oul# (e &ore pro%ita(le %or an in'estor

to put "is or "er &oney into an in#e- %un#.

+n t"e real *orl# o% in'est&ent, "o*e'er, t"ere are o('ious argu&ents against t"e EM$. !"ere are

in'estors *"o "a'e (eaten t"e &ar)et arren Bu%%ett, *"ose in'est&ent strategy %ocuses on

un#er'alue# stoc)s, &a#e (illions an# set an e-a&ple %or nu&erous %ollo*ers.

arren Bu%%ett "as (eaten t"e &ar)et to suc" an e-tre&e #egree t"at co&paring "is success to e'eryone

else can/t (e #one using a nor&al line c"art.

Ber)s"ire $at"a*ay/s stoc) price increase# (y a &in#(lo*ing 1,00,000 (et*een 14 an# 2014. !"e

S6 500, on t"e ot"er "an#, increase# (y only a(out 2,300 o'er t"at ti&e.

Anot"er *ay to loo) at Bu%%ett/s super"u&an in'esting po*ers is to co&pare annual gro*t" rates o%

Ber)s"ire stoc) an# t"e (roa#er stoc) &ar)et. Since year to year c"anges are e-tre&ely noisy an#

'olatile, t"roug" t"e en# o% t"e 20t" century, Bu%%ett "an#ily outper%or&e# e7uities as a *"ole. Since

1, "e/s still ten#e# to (eat t"e &ar)et, (ut (y a &ore &o#est a&ount.

!"ere are port%olio &anagers *"o "a'e (etter trac) recor#s t"an ot"ers, an# t"ere are in'est&ent "ouses

*it" &ore reno*ne# researc" analysis t"an ot"ers. So "o* can per%or&ance (e ran#o& *"en people are

clearly pro%iting %ro& an# (eating t"e &ar)et8

9ounter argu&ents to t"e EM$ state t"at consistent patterns are present. or e-a&ple, t"e Januarye%%ect is a pattern t"at s"o*s "ig"er returns ten# to (e earne# in t"e %irst &ont" o% t"e year; an#

t"e *ee)en# e%%ectis t"e ten#ency %or stoc) returns on Mon#ay to (e lo*er t"an t"ose o% t"e i&&e#iately

prece#ing ri#ay.

Stu#ies in(e"a'ioral %inance,*"ic" loo) into t"e e%%ects o% in'estor psyc"ology on stoc) prices, also

re'eal t"at in'estors are su(ject to &any (iases suc" as con%ir&ation, lossa'ersion an# o'ercon%i#ence

(iases.

http://www.investopedia.com/terms/r/randomwalktheory.asphttp://www.investopedia.com/terms/i/indexfund.asphttp://www.investopedia.com/terms/i/indexfund.asphttp://www.investopedia.com/terms/w/warrenbuffet.asphttp://www.investopedia.com/terms/j/januaryeffect.asphttp://www.investopedia.com/terms/j/januaryeffect.asphttp://www.investopedia.com/terms/w/weekendeffect.asphttp://www.investopedia.com/terms/b/behavioralfinance.asphttp://www.investopedia.com/terms/b/behavioralfinance.asphttp://www.investopedia.com/articles/investing/051613/behavioral-bias-cognitive-vs-emotional-bias-investing.asphttp://www.investopedia.com/terms/i/indexfund.asphttp://www.investopedia.com/terms/w/warrenbuffet.asphttp://www.investopedia.com/terms/j/januaryeffect.asphttp://www.investopedia.com/terms/j/januaryeffect.asphttp://www.investopedia.com/terms/w/weekendeffect.asphttp://www.investopedia.com/terms/b/behavioralfinance.asphttp://www.investopedia.com/articles/investing/051613/behavioral-bias-cognitive-vs-emotional-bias-investing.asphttp://www.investopedia.com/terms/r/randomwalktheory.asp

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Accor#ing to plans *"ic" essentially trac)

t"e (roa#er in#e-,an# pay "ig"er %ees as co&pare# to stoc), in#e- %un#s orE! s.Also &any &utual

%un# type in'est&ents #on/t use stop loss or#erto protect gains an# t"us #o not al*ays pro'i#e t"e type o%

protection in#i'i#uali?e# port%olios can per%or&. As "e puts it, in'estors are setup to %ail %ro& t"e get

go.

+n'esting in 401=)>s is no (etter. Most 401=)>s aren/t (enc"&ar)e# an# &ost co&panies #on/t "a'e a

goo# in'est&ent policy %or selecting %un#s *it"in t"e progra&. @ou can/t e'en get so&e asset classes in

&any an# &ost a#'isors are sales people, not %i#uciaries an# just taug"t "o* to sell %un#s, "e a##s.

!"e goo# t"ing is &any &ore in'estors are ta)ing responsi(ility an# interest in t"eir in'est&ents. !"ey

are ta)ing t"e initiati'e to learn "o* t"eir in'est&ents *or) an# are less inti&i#ate#.

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De%erences: "ttp:***.in'estope#ia.co&articles02101502.asp

"ttp:***.(usinessinsi#er.co&*arren(u%%ett(er)s"ire"at"a*ay'ssp50020153i-??3jg?0KgCF

"ttp:***.in'estope#ia.co&articlestra#ing10(eatt"e&ar)et.asp

http://www.investopedia.com/articles/02/101502.asphttp://www.businessinsider.com/warren-buffett-berkshire-hathaway-vs-sp-500-2015-3#ixzz3jgz0KgGNhttp://www.investopedia.com/articles/trading/10/beat-the-market.asphttp://www.investopedia.com/articles/02/101502.asphttp://www.businessinsider.com/warren-buffett-berkshire-hathaway-vs-sp-500-2015-3#ixzz3jgz0KgGNhttp://www.investopedia.com/articles/trading/10/beat-the-market.asp