[Mark1808]

Here is the problem with David's theory as I see it. Some small percentage of stocks in the market are priced too low. Lets say maybe 5 out of 100 are for example. Lets say you had a barrell with 95 red marbles and 5 blue, the market for marbles. The market is very good at making red marbles. If you were color blind and picked one you'd have to bet it would be red, because the market makes mostly all red marbles and you can't tell the differance. Buffett is not color blind like most investors when he picks a blue one, he knows its blue even if the market is 95% red.

But Buffett isn't always right. Well lets say that one of the red marbles is painted blue so that Buffett thinks its blue, but its actually red. Is their any advantage in Buffett disagreeing with his blue choices just because he knows some will be wrong and the market is very good at making red marbles. The answer is clearly no.

Another thing to add is the market is believd to be mostly effeciently priced. If Buffett is wrong in the stock being undervalued the next logical choice is that it is in fact fairly valued and should expect a market return. Even if he is only half right in picking undervalued stocks he should be reasonably certain the half he is wrong on are actually fairly priced. In fact if you find just one stock out of ten that outperform the market and the rest equal the market performance you will do better than most mutual funds and professional money managers.