I’ve posted Entry #27 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Not One Study Supports the Claim that the Market is Efficient.
Juicy Excerpt: The idea that the market is efficient is an attempted explanation of the data, not itself a finding. The two are not the same thing. A research finding can be said to be the product of science. An attempted explanation of a research finding can never be anything more than subjective opinion until it is tested in follow-up research.
Short-term timing doesn’t work. That’s a research finding. The idea that the market is efficient is (or at least once was) a plausible explanation of this finding. An efficient market is one in which the price is always right or at least as close to right as it is possible to get (an “efficient” market is one in which all factors known to have a bearing on price have been taken into consideration by the investors setting the price). If the market price is always right, it is not possible for any investor to gain an edge by analysis of the factors affecting price. Any insight he might develop was taken into consideration by the market before he developed it. It is only by gaining an edge that investors can hope to engage in effective market timing. The idea that the market is efficient does indeed explain why short-term timing doesn’t work.
But it is not the only possible explanation.