Markets might not be perfectly efficient, but they’re efficient enough that most investors should recognize that if they know something about a stock, the price already reflects it.
Two of investing’s most important principles are “understand that markets are efficient” and “diversify.” I learned both principles the hard way when, as a naïve high schooler who thought himself very financially sophisticated, I got a couple of hot stock tips about companies with innovative products that were going to change their industries and make their shareholders rich. Wanting to be one of those rich shareholders, I decided to buy.
I quickly lost everything I put in. It was about a $1,500 mistake, ultimately, which was a not-insignificant sum for a teenager in the mid-90s. I should have put the money in an S&P 500 index fund, but no, I had to fly close to the sun–and I got burned.
Since then, I’ve learned to respect the efficient markets hypothesis, which says that asset prices reflect all publicly available information. Markets might not be perfectly efficient, but they’re efficient enough that most investors should recognize that if they know something about a stock, the price already reflects it.
Here’s an illustration from another financial world that was near and dear to my heart in those days: baseball cards. In 1987, Mark McGwire of the Oakland Athletics became my favorite baseball player. I thought he had a cool name, and his 49 home runs that season broke the MLB rookie home...
Washington, April 27 Prominent television hosts and journalists have pushed back against online claims that the White House ... Washington, April 27 Prominent television hosts and journalists have ...