[DesertCat]

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Everyone is at least somewhat arguing about market efficiency it seems. I'm sure all the finance guys already know this, but for those who don't: Efficient market theory basically says that you can't earn abnormally high returns relative to risk. I don't know what I believe regarding this, as there are levels.

Weak form efficiency means that price movements are only affected by new information (Random movements), thus past prices can't predict future prices. This is based on the only two things affecting a company's value are cash flows and risk. If weak form is true, there goes technical analysis as I understand it.

Semi-strong form efficiency says all public information is quickly and correctly priced into assets. Many academics and people in general believe in this at least somewhat and thus use indexes or structure porfolios to their risk preference and do not actively trade.

Some explanations for people that do beat the market (relative to risk is important) from efficient market guys: 1. The percentage that they beat the market by is their value of adding new information to the market through better analysis, whatever. 2. The extra percentage points are due to the extra time spent thus opportunity cost. 3. Those that beat it are outliers and are getting lucky basically. 4. This pertains to Buffett especially: they influence the future cash flows through their investment by being on the board, whatever.

I know this doesn't really answer anything but hopefully it provides some background for those who hadn't heard of this concept.

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Nice summation of the status quo as I understand it. Personally I buy the weak form, but nothing beyond that.

And one big problem explanation #4 has is that Buffett is rarely on boards and has been a passive investor for most of his life. And when he has been on a board sometimes his presence there cost him dearly. Coke is a great example because he was restricted from selling shares during it's peak in the S&P 500 bubble.

Fama's explanation that Buffett was improving results because of his hands on management skills applied to his purchases of entire businesses. But the problems with Fama's explanation is that Buffett had a sterling track record before buying his first business, that most of his gains have come from being a shareholder in public companies, and it's been pretty well documented that he has little "management" interaction with a business once he buys it. He essentially lets the previous owners run it, and send him the profits to invest.