I’m actually gonna lose it if I hear one more person just dismiss someone else’s investment thesis with “it’s already priced in.” It’s probably not. And the meme of things always being priced in comes from the Efficient Market Hypothesis, which is an academic theory adjacent to Modern Portfolio Theory, which itself has been bastardized and misappropriated by many “investors” online.
So here’s a quick rundown on it from someone who actually knows what it is, what it’s used for, and why it does not mean you can’t be a successful active retail trader.
EMH argues that asset prices reflect all available info. There are three forms of EMH: strong, semi-strong, weak.
Weak form argues that technical analysis is useless. This is somewhat true IMO, but support/resistance, volume spikes, relative strength, and moving averages are useful.
Semi-strong form argues that fundamental analysis is useless, which is just blatantly untrue. The market is often slow to react and there are God knows how many examples of people catching things early. I’ve done, you’ve done it, and institutions certainly have done it.
Strong form argues that insider trading is useless and I don’t even think I need to expand on how untrue that is.
Now, does that mean I’m dismissing EMH and its creator as stupid? Of course not. EMH was created by Eugene Fama, and his name speaks for itself. Among his many accomplishments, he created the Fama-French model, which has also been bastardized by “investors” who go on and on about factor tilts and diversifying just to end up investing in VT.
EMH is like rational choice theory in Econ 101: it’s a baseline framework under which you teach students the foundations, before you teach them (or they learn themselves) that real life is messy. EMH assumes that investors are all rational wealth maximizing machines, that irrational behavior is totally random, and that if a price does get irrational, smart money immediately steps in to move it back to where it should be. In reality, none of this is true. If this were true, we never would have had 2008 or even minor corrections like 2022.
It also assumes that there are no asymmetries in access to information, and that trading is frictionless - no costs, no tax, and instant.
Bottom line: yes it’s hard to beat the market. You won’t beat it by blindly trading trending tickers. EMH explains why markets are hard to beat. But it’s a classroom model, not real life.