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How to Exploit an Inefficient Market

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Posted by Dash of Insight

on Thursday, 29 March 2018 09:18

Exploiting inefficiencies using two recent examples, Facebook and Nvidia (the artificial intelligence/self driving stock). In the one case selling is justified, in the other buying the panic makes more sense - R. Zurrer for Money Talks

The Efficient Market Hypothesis is a mainstay of academic thinking about financial markets. It is rejected by many traders and money managers. Warren Buffett, for example, famously said that he would be on a corner, selling pencils from a tin cup if markets were efficient.

I do not expect to settle this decades-long debate in a single blog post. Instead, I will share how my own personal thinking changed along with my career – from college professor, to financial analyst, and to investment manager. I hope to stimulate and to provoke; we can all benefit from some wise comments. I will also suggest a few ideas we might consider to exploit inefficiency.

Provocative Examples

It is often useful to have a specific example in mind. Let’s start with Facebook (FB), a company familiar to all. Here is a chart of recent stock action:

032818 0149 HowtoExploi1

....continue reading HERE


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