this post was submitted on 30 Jan 2025
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The efficient market hypothesis does not claim anything about “rational”.
I'll amend my statement. If markets were actually efficient then Warren Buffet couldn't have become a billionaire because everything would have already been "priced in".
This paper concludes that Buffett did essentially do factor-investing.
I don't really understand why the efficient market hypothesis (EMH) and factor investing don't contradict each other but smarter people think they don't (e.g. Fama who co-invented both). The general consensus seems to be that the weak form of EMH is correct but the semi-strong and the strong EMH probably not. However, while markets may not be perfectly efficient they can still be very close. This is why I believe that "priced in" often works in practice and is a useful concept.