Theory of Efficient Markets

Apparently, stock research is unnecessary. Than why am I writing this blog anyway? The general gist of the theory is that since technology is so advanced nowadays, it allows information travel practically at the speed of light. Because information about anything, more specifically what's going on within a company, is made available the instant it happens, the stock price always reflects the public's full knowledge of the company.

While this theory seems plausible, it just doesn't seem rational enough to actually use it as a strategy to invest. If blindly following the theory, one would just invest in $100 and upwards stocks, because if the market thinks these stocks are worth the price, than I do too. But what about valuation? Analysts are always screaming about stocks being overvalued or undervalued. If analysts are still doing that, then the obviously don't believe in the theory. Because in my interpretation, in the theory of efficient markets, there are no valuation concerns. Each stock price is at where it's at, because all the information available points to that specific share price.

I've learned about this theory in a few investing and finance classes I've taken. The theory is still in the textbooks, but should it be? Is the theory telling us, as investors, to just be irrational and trust the share price as an indicator of value? I'd rather not bank on it.

There are so many means of evaluating a stock before purchasing it. Blind faith is not one of them. Things that are more important than stock price: Cash flow from operations, Assets on the balance sheet, Liabilities on the balance sheet.