Key Points

• The Efficient Market Hypothesis has plenty of criticisms that are not only important to understand, but also have strong validity, and therefore should not be dismissed.
• Boom and bust cycles provide strong evidence of pervasive market irrationality; nevertheless, this is not the same as knowing when irrationally exists and knowing when it will go away.
• It is not enough to be able to spot irrationality because, “the markets can stay irrational longer than you can stay solvent”.
• Rational and irrational investors may be unduly influenced by behavioral biases leading to the sustained, yet unpredictable mispricings of securities.

Continue reading → Why invest in one thing over another? (Part 4)