Are Markets Efficient?

[rokid]

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I found this quote humorous. Of course, it supports my view that the markets are efficient.

"Rex Sinquefield of Dimensional Fund Advisors is more brutal. He says there are three classes of people who do not believe that markets work: the Cubans, the North Koreans and active managers."

The link takes you to an electronic book that discusses active and passive investing philosophies. The Sinquefield quote was taken from that e-book.

http://www.deanlebaron.com/book/ultimate/chapters/act_port.html

 

[coolhand]

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Rokid,

My personal belief is that today's market is just not the same as say, ten years ago. Much more manipulation by central banks (on a global scale), not to mention hedge funds, the derivatives market, etc.

Remember whendividends actually mattered? That was many years ago. The game just keeps evolving. I just don't like the term "efficient" when describing today's market. It implies that stox are priced according to market fundamentals, something I no longerbelieve.

However, your style of investing still holds water regardless and I think for many it's the way to go.

 

[rokid]

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Coolhand,

I respect your position. There does seem to be a sense that the success, and returns, of U.S. stock market over the last 70 years may not be repeated. Consequently, all of the academic studies, including those that demonstratemarket efficiency, may not be valid going forward. Certainly, the returns of 1990-2000 won'tbe repeated unless we can somehow manufacture another bubble.

I think there's a growing sense that there are two components to stock prices: 1.) the fundamentals, i.e. the expected stream of income from dividends and growth; 2.) the behavioral/emotional component, i.e. the part that drives bubbles thatinflateP/Es above their normal/historical/reasonable values and accounts for the majority of stock price increase.

Unfortunately,Ican't figure out how to exploit the behavioral component.

You're correct about dividends. Unfortunately, for us, most of the historical return on stocks was the result of fat, reinvesteddividends, not increases in stock price. Since dividends are way down, future returns may be paltry.

Say, do you know where I can get a dancing acorn?

 

[Birchtree]

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Rokid-allow me a moment to respond regarding dividends. Dividend payments are actually on the rise along with multiple stock by back programs. Th next bubble coming will probably be in the energy patch and I plan to ride it up for at least the next 7 years. I know I'm new to the board-but I am so bullish I can hardly sit still. I've been playing the markets to many years to be faked out by these stinking hedgefunds and their bear funds. The bull is getting ready to tear out of the shute. And the majority will miss this next move up-you have to have faith and a great deal of courage. The old saying when I was in Nam was that prudence is the better part of valor. Not today-I'm in the cannon up to my neck-please somebody pull the trigger. Dennis

 

[rokid]

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Birchtree,

I hope you're right. I've got 75% of my holdings in equities. I'd like to see a bull market.:^

 

[Guest]

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Birchtree wrote:

you have to have faith and a great deal of courage.


I'm in the cannon up to my neck-please somebody pull the trigger

That is actually the way people were talking in 1929.

What is that cliche about repeating history?

 

[Mike]

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The fear mongering here is getting out of hand.

1929, Greg? Are you predicting another crash and another depression? Let's get you on the record right now.

 

[coolhand]

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Getting back to "market efficiency" I forgot to mention all the "book cooking" that went on not so long ago (or still is?).


Yeah, market efficiency ain't what it used to be.

 

[rokid]

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However, once the "book cooking" became public, the market efficiently took care of the crooks.

 

[coolhand]

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rokid wrote:

However, once the "book cooking" became public, the market efficiently took care of the crooks.

LOL....point taken.