Warren Buffett on the Efficient Market Hypothesis
NEW YORK (
TheStreet) -- According to the proponents of the
They say investors trying to find a secret formula are wasting their time because stock prices follow a random walk. Interestingly, this theory also implies that a monkey selecting stocks by throwing darts at a newspaper's financial pages should perform as well as any
You could guess how this was such a huge relief for millions of stock market investors. Suddenly, one need not worry about timing or
Warren Buffett gave a speech at the Columbia Business School, arguing that the superinvestors of Graham-and-Doddsville can
"So these are nine records of "coin-flippers" from Graham-and-Doddsville. I haven't selected them with hindsight from among thousands. It's not like I am reciting to you the names of a bunch of lottery winners -- people I had never heard of before they won the lottery. I selected these men years ago based upon their framework for investment decision-making. I knew what they had been taught and additionally I had some personal knowledge of their intellect, character, and temperament. It's very important to understand that this group has assumed far less risk than average; note their record in years when the general market was weak. While they differ greatly in style, these investors are, mentally, always buying the business, not buying the stock. A few of them sometimes buy whole businesses. Far more often they simply buy small pieces of businesses. Their attitude, whether buying all or a tiny piece of a business, is the same. Some of them hold portfolios with dozens of stocks; others concentrate on a handful. But all exploit the difference between the market price of a business and its intrinsic value."I'm convinced that there is much
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