Common Stocks and Uncommon Profits and Other Writings

 
Is the Market Efficient? 
2 6 7 
with all the advantages of hindsight. In each of these five decades there 
were not a few, but many common stock opportunities that ten years 
later yielded profits running to many hundreds of percent for those who 
had bought and stayed with the shares. In some instances profits ran well 
into the thousands of percent. Again in every one of these five decades 
some stocks which were the speculative darlings of the moment were to 
prove the most dangerous kind of trap for those who blindly followed 
the crowd rather than those who really knew what they were doing. All 
of these ten-year periods essentially resembled the others in that the 
greatest opportunities came from finding situations that were extreme- 
ly attractive but that were undervalued because at that particular 
moment the financial community had significantly misjudged the situ-
ation. As I look back on the various forces that buffeted the securities 
market over this fifty-year period and at the great waves of public opti-
mism and pessimism that succeeded each other over this time span, the 
old French proverb, “Plus ca change, plus c’est la meme chose” (the more 
things change, the more they remain the same), comes to mind. I have
not the slightest doubt that as we enter the emerging decade of 
the 1980’s, with all the problems and the prospects that it now offers,
the same will continue to hold true. 
THE FALLACY O F THE EFFICIENT MARKET
In the last few years, too much attention has been paid to a concept that 
I believe is quite fallacious. I refer to the notion that the market is per-
fectly efficient. Like other false beliefs in other periods, a contrary view 
may open up opportunities for the discerning. 
For those unfamiliar with “efficient” market theory, the adjective 
“efficient” does not refer to the obvious mechanical efficiency of the 
market. A potential buyer or seller can get his order to the market where 
a transaction can be executed very effectively within a matter of a cou-
ple of minutes. Neither does “efficiency”refer to the delicate adjustment 
mechanism which causes stock prices to move up or down by fractions 
of a point in response to modest changes in the relative pressure of buy- 
ers and sellers. Rather, this concept holds that at any one time the mar-
ket “efficient” prices are assumed to reflect fully and realistically all that 
is known about the company. Unless someone has some significant, 
illicit inside information, there is no way genuine bargains can be found, 

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