What's so seductive about the efficient markets hypothesis is that it applies nine years out of ten. A lot of the time it works. But when it stops working, you blow up.
Sentiment: NEGATIVE
The markets are efficient over time.
The market is incredibly inefficient and capable on rare occasions of being utterly dysfunctional. And people have a really hard time getting their brain around that fact. They want to believe that it's approximately efficient almost all the time, and it simply isn't true.
I don't entirely reject the idea of efficient markets. It needs updating.
It's difficult to make your clients understand that there are certain days that the market will go up or down 2%, and it's basically driven by algorithms talking to algorithms. There's no real rhyme or reason for that. So it's difficult. We just try to preach long-term investing and staying the course.
Markets that don't work we're going to step away from.
One thing on psychology, which we've always known, is that every investor says they're long-term - and they are until the market takes a hit.
It's only when the markets are perceived to have exhausted themselves on the downside that they turn. Trying to prevent them from going down just merely prolongs the agony.
Our goal is not to produce immediate results. We've been tasked with producing long-term results. That means that there's more risk in any individual thing we take on. But we still aspire to a strong return on investment.
As someone with a deep faith in competition and the market, I also know that markets only work with tough enforcement of the rules that guarantee competition and fair play - and that the pressure to break those rules only gets stronger as the amount of money involved gets larger.
The time horizon may be too long for sole reliance on market solutions - but perhaps the inventiveness of the financial services industry will prove me wrong that point!
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