Efficient market theory; Total junk still being taught to people?

J

jbtrader23

Technical analysis is seen somewhere between tarot cards and voodoo according to the academic "theorists".

I just can't believe this stuff is still taught in schools. The fundamental flaw as I see it in their arguement is assuming that all market participants will view the same information the same way. I can't think of anything more bogus than that. All you have to do is watch bubblevision to get a sense of how people will view the same information differently. To one person, if Intel makes their numbers, it's a buy. To another, even if they make their numbers, top line growth could be slow, or margins are declining and they'll go short. The same thing with technical indicators. The VIX is one of the best and mostly widely used sentiment gauges around. But not everyone buying stocks is even aware of it. Not the novice. Most mom and pop investors can't even read a balance sheet.

I don't know how the theorists can explain the consistent success of some day traders. Or the success of Warren Buffet. Reading about him in Fortune magazine today, I was struck by the comment about,..."he must drive the efficient market theorists crazy". By consistenly beating the market for 3 decades, he must be the luckiest man on earth then.
 
aggregate theories are just that: aggregate theories. If a system is given enough time then yes, it may approach some optimized state. Take a physical system and whack it with a stick and it will oscillate for a while before it settles down to its stable state.

This is precisely why people make money in financial markets; some take advantage of the first few large oscialltions after the stick whacking and others let the thing ring for a while but they dont wait for the asymptotically approached stable state .....
 
Originally posted by darkhorse
there is no optimal value for a complex system-

flux = life, stasis = death
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complex systems have regions of stability - until the next stick whacking .....
 
Originally posted by jbtrader23
Technical analysis is seen somewhere between tarot cards and voodoo according to the academic "theorists".

I just can't believe this stuff is still taught in schools.
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I just graduated in May with a BS in Finance. The efficient market theory was crammed down our throat. Most professors don't know shit about what really works in the market. Most of their "theories" don't apply to the real world becuase they ignore things like commissions and slippage. Well wake up! Commissions and slippage are everything in this business.
 
Soros's theory of reflexivity seems to work pretty well as a frame work for looking at the market process. (he did alright with it anyway.)

Soros:

"...financial markets cannot possibly discount the future correctly because they do not merely discount the future; they help to shape it. In certain circumstances, financial markets can affect the so-called fundamentals which they are supposed to reflect."
 
Originally posted by axehawk


I just graduated in May with a BS in Finance. The efficient market theory was crammed down our throat. Most professors don't know shit about what really works in the market. Most of their "theories" don't apply to the real world becuase they ignore things like commissions and slippage. Well wake up! Commissions and slippage are everything in this business.
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well, did you set them straight or just sit there like a lump on a log?
 
Originally posted by CalTrader
complex systems have regions of stability - until the next stick whacking .....
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or gradual shift to new region...
 
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