Warren Buffett on Efficient Market Theory vs. Value Investing. | [C:W.B Ep.151]

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In this episode, Warren Buffett was asked on the difference between efficient market theory (especially about what’s taught at the business schools) and value investors, will there ever be a reconciliation?

In this episode, you’ll learn:
- Why academic community called Warren Buffett 'Lucky'?
- What is Warren Buffett comments on Efficient Market Theory?
- Why Warren Buffett thinks Efficient Market Theory is silly?
- What investment is all about?
(https://www.yapss.com/post/collection-warren-buffett-151-efficient-market-theory)

#WarrenBuffett #CharlieMunger #BerkshireHathaway

[Transcript]
(Source: https://buffett.cnbc.com/video/1999/05/03/morning-session---1999-berkshire-hathaway-annual-meeting.html)
~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.

AUDIENCE MEMBER 00:08
Hello. I’m Murray Cass from Markham, Ontario. First off, Mr. Buffett, Mr. Munger, I’d like to thank you for being so generous with your time every year at these meetings.

Mr. Buffett, many in the academic community call you lucky, or a statistical outlier. Mr. Munger, I’m not sure what they call you. (Laughter)

WARREN BUFFETT 00:31
Well, you’re free to speculate on what they call him. (Laughter)

AUDIENCE MEMBER 00:39
I know you don’t like to forecast the equity markets, but maybe you would dare to forecast the evolution of the debate between proponents of the efficient market theory and value investors.

Do you think there will ever be a reconciliation? And I’m talking especially about what’s taught at the business schools.

And as an addendum, are your designated successors, are they outliers as well?

WARREN BUFFETT 01:05
Well, we like to think they are. And then, they may be more outliers than we are.

The market is generally — you know, I — to me, it’s almost self-evident if you’ve been around markets for any length of time, that the market is generally fairly efficient.

It’s fairly efficient at pricing between asset classes, it’s fairly efficient in terms of evaluating specific businesses.

But being fairly efficient does not make — does not suffice to support an efficient market theory approach to investing or to all of the offshoots that have come off of that in the academic world.

So, if you’d believed in efficient market theory, and been taught that and adapted — adopted it for your own 20 or 30 years ago, or 10 years ago — I think it probably hit its peak about 20 years ago — you know, it would have been a terrible, terrible mistake.

It would have been like learning the earth is flat. It just — you would have had the wrong start in life.

Now, it became terribly popular in the academic world. It almost became a required belief in order to hold a position.

It was what was taught in all the advanced courses. And a mathematical theory that involved other investment questions was built around it, so that, if you went to the center of it and destroyed that part of it, it really meant that people who’d spent years and years and years getting Ph.D.s found their whole world crashing around them.

I would say that it’s been discredited in a fairly significant way, over the last decade or two. I mean, you don’t hear people talking the same way about it as you did 15 or 20 years ago.

But the market generally is fairly efficient in most ways. I mean, it is hard to find securities that are inefficiently priced. There are times when it’s relatively easy. But right now, for example, it’s difficult.

There — I don’t know exactly how much it’s holy writ, still, in business schools.

I certainly get the impression, as I go around talking to business schools, that it is far less regarded as, you know, sort of unquestioned dogma that it — like it was 15 or 20 years ago.

The University of Florida now has some courses in valuing businesses. University of Missouri’s putting in one.

And I think the high priests of efficient market theory are probably not in the same demand for speaking engagements and seminars and all of that as they were a decade or two ago.

It’s hard, though — it’s very interesting. It’s hard to dislodge a belief that becomes sort of — becomes the dogma of a finance department.

It’s so challenging to them and, you know, they have to, at age 30 or 40, to go back and say, “What I’ve learned up to this point, and what I’ve been teaching students and all of that, is silly,” that doesn’t come easy to people.

Charlie?

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CHARLIE MUNGER 04:44

WARREN BUFFETT 05:31

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