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Value Investing: Tools and Techniques for Intelligent Investment by James Montier

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Chapter 1. Six Impossible Things before Breakfast, or, How EMH has Damaged our Industry[1]

  • Academic theories have a very high degree of path dependence. Once a theory has been accepted it seems to take forever to dislodge it. As Max Planck said, 'Science advances one funeral at a time'. The EMH debate takes on almost religious tones on occasions. At one conference, Gene Fama yelled 'God knows markets are efficient!' This sounds like a prime example of belief bias to me (a tendency to judge by faith rather than by evidence).

  • The EMH bothers me less as an academic concept (albeit an irrelevant one) than it does as a source of hindrance to sensible investing. EMH has left us with a long list of bad ideas that have influenced our industry. For instance, the capital asset pricing model (CAPM) leads to the separation ...

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