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Efficient Market Theorist and its Discontents! October 7, 2009

Posted by shaferfinancial in Uncategorized.
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Regular readers know that I am not a believer in the efficient market theory.  Facts are, I am a social scientist and understand the huge amount of data that tells us we generally act upon our emotions and are not rational especially in times of stress.  The percentage of folks that can remain completely rational at all times is extremely small.

But efficient market theory demands of market participants that they are rational at all times [as a whole] among other questionable assertions.  So it is of no surprise that I blog against the theory and the strategies that extend from it like mutual fund investing, asset allocation and diversification.

For me it all started with reading Warren Buffett, but he is far from the only EMT discontent.  Unfortunately, the media, the financial planning world, and most of the internet media are big  fans of EMT and its associated strategies.  What that has led to is the vast majority of folks losing out on a once in an investors lifetime opportunity.  Because so many people were either panicking or convinced that their asset allocation, mutual fund, strategy was solid the vast amount of people missed it.  What is it?  If you had been paying attention you could have bought solid companies at rock bottom prices back in March and April.  Want examples?  General Electric went below $7 [currently at $16.16].  Wells Fargo below $9 [currently $29.26].   Goldman Sacks below $60 [currently at $190.48] and Berkshire Hathaway went down below $73,000 [currently at $100,400].  Apple below $80 [currently $190.25].

Now my point isn’t to play Monday Morning Quarterback with stock picking.  Only to point out that if you had followed Warren Buffett’s investing theories instead of some academic’s or what Wall Street wants you to believe in, there really were “once in a investing lifetime” opportunities.  And if you were following those bobble heads or mutual fund sales folks or financial planners or any of the other so called experts you missed it.

My only regret was that I was not more liquid in order to buy more than I did.

Note***  My friend and peer, Brett Anderson has taken up the $100,000 challenge here.  Can’t wait for the next post.  But more and more people are starting to understand how the Minnesota Life EIUL can enhance your retirement!

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