Markets Will Always Be Inefficient

During their latest episode of the VALUE: After Hours Podcast, Dickson, Taylor, and Carlisle discuss Markets Will Always Be Inefficient. Here’s an excerpt from the episode:

Jake: Do you think the market’s more or less efficient than, let’s say, 15 years ago?

Drew: Mm. Oh, Jake.

Tobias: How would you show that empirically?

Drew: Yeah. Well, it’s impossible to show empirically. You can show higher volatility and claim like Schiller would. That means it’s not efficient. But we’ve also been through a wild period between the GFC and all the nervousness in Europe in 2011, 2012, 2013, 2014 to Brexit, now to COVID, and to the Ukraine. We just had a lot of stuff going on. In terms of market efficiency, I still think broadly, markets– As much as I’m a Richard Thaler disciple, I still think broadly the markets are tough to beat. Indices are tough to beat, especially if you’re really diversified. It’s tough to know where things are going to go. It’s tough to beat the market. The price is wrong. We just don’t know which direction it’s wrong in, usually.

Jake: [laughs]

Drew: Now, do things get a little crazier because of social media? Well, they certainly did for GameStop, and AMC, and Bed Bath & Beyond, and all those stories. That was a social phenomenon that wouldn’t have happened.

Tobias: We’ve seen manipulation before.

Drew: That was what I was going to say. We have seen other stocks, the pets.coms of the world and everything go crazy without it.

Tobias: I was thinking Robert Barron’s like– [crosstalk]

Drew: Oh, way back. Yeah.

Jake: Oh, yeah.

Tobias: Yeah.

Drew: Sure. That’s how you played the game back then. [crosstalk]

Jake: Cornering markets.

Tobias: Yeah. They’ve tried to make that illegal, but I don’t know how that works in a Reddit-type world. What are you going to do? Approach every single one of the redditors? Toss them all in jail?

Jake: Sweep all the ants up into a pile? [crosstalk]

Drew: Yeah, but back to your question, if our markets less efficient or more, I think they’re just as difficult as they were before. I don’t think they’re necessarily more efficient now even though we’ve had more time. I think that we still have these human beings on the other side of the trade as much as things have become algos and robots. But even they project what their creators are thinking. We still get overreactions and underreactions, and we still have all those biases that get in the way of us thinking clearly. I don’t think it’s ever going away. The trick is, can we do anything about it? Daniel Kahneman said, “Actually, I invented all these things. I still make the same mistakes.” How are we all– [crosstalk]

Jake: Yeah, [crosstalk] confidence.

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