Efficient Markets Only in Textbooks.

Often things are taught for a long time because they are easy to teach. And even if they fail in real life, it does not mean that the doctrine is changed. One of these teachings is that markets are efficient. That is, traded prices always reflect all information. Since all news and changes are immediately processed in the markets, there are no over- or undervaluations.

In the current shareholder letter, Warren Buffett contradicts this view. He thinks efficient markets exist only in textbooks. On the contrary, stocks often trade at truly foolish prices. Usually, it is only in retrospect that it becomes clear why these movements occurred. The advantage of markets is that from time-to-time pieces of wonderful companies can be bought at wonderful prices.

As an investor, it is important to profit from these wild swings and not be harmed by them. A financial loss can happen if one is led by fear and greed and, for example, rushes to sell shares. Warren Buffett and his business partner Charlie Munger have proven over decades how beneficial a calm and pragmatic approach is. We at Gutmann endorse this.