Warren Buffett on Market Efficiency

Warren Buffett is generally acknowledged as the world’s greatest investor.  He has gotten a lot of well-deserved publicity this week for his plan to give away most of his wealth.

Spending some time thinking about his success is a good exercise for anyone interested in markets or investing.  Janet Lowe’s book collecting useful wisdom is a good source.

Warren Buffett does not believe that markets are efficient.  If they were, he would have no advantage.  On the contrary, he feels that he gains an advantage from those who take the theory too seriously.

"I’d be a bum on the street with a tin cup if the markets were always efficient."

"Investing in a market where people believe in efficiency is like playing bridge with someone who has been told it doesn’t do any good to look at the cards."

(Personally, I prefer to think of it as opponents who do not look at the cards!)

"It has been helpful to me to have tens of thousands (of students) turned out of business schools taught that it didn’t do any good to think."

Warren Buffett has spent a lifetime finding seriously mis-priced stocks to buy.  It is little wonder that he sees the market as inefficient.  Does that mean that Nobel prize-winning professor lose to the world’s greatest investor?

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2 comments

  • Dr. Artfredo C. Abella - New York, USA-UB February 14, 2007  

    I just want to react on what Mr. Warren Buffett said that the market is not always efficient, the market may sometimes be bullish seems to be the perfect description. Buy when the blue chips are down and sell when they are high is still the golden rule in making doughs in the market. I still regard Mr. Buffet to be my mentor after all he is the second richest man in the world today and a great benefactor too.

  • Paz August 2, 2010  

    Out of context… Market efficiency: strong form, semi-strong form, weak form of market efficiency—reflections of price and public information—not inefficiency as wasteful.