The market factors all known information - and a lot of speculation as well, of course - in pricing stocks.This is sounding very much like the Efficient Market Hypothesis, which asserts that financial markets are "informationally efficient".
Beyond the normal utility maximizing agents, the efficient-market hypothesis requires that agents have rational expectations; that on average the population is correct (even if no one person is) and whenever new relevant information appears, the agents update their expectations appropriately....Thus, any one person can be wrong about the market—indeed, everyone can be—but the market as a whole is always right.Writing in the SMH Paul Hoffman from the Intelligent Investor said
Conventional economic theory tells us that people like Kerr Neilson and Warren Buffett are statistical flukes. But... their stock selections are based on a pre-defined philosophy. That should tell us something about the efficient market hypothesis (it's flawed) and the type of approach—the intellectual origin—these successful investors employ (it's successful).And that is the nub of the EMH argument - that no matter how smart or intelligent or well informed you are, the market is always better at all these things so you may as well just give up now.
Warren Buffet refuted the EMH (you can read it all here) however the principle behind the EMH, that you don't need to think also needs to be thought about,
you really had the revealed truths, for a decade or so, saying it didn’t do any good to think. Investments presumably means businesses too. And once you say investments are all priced efficiently, you presumably have to go on and say businesses are priced efficiently, and you’re just throwing darts all the time. If this group were a bunch of chess players, or a bunch of bridge players, and they were all convinced that it did not pay to think about what to do, you’d have an enormous advantage. We’ve had tens of thousands of students in business schools taught that it’s [a waste of time to think].Exactly, if the market is better at thinking than you can ever hope to be just what is it that they teach at business schools?
