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Did Ben Graham Eventually Embrace the Efficient Market Theory? - Views on News from Equitymaster
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  • Oct 5, 2017 - Did Ben Graham Eventually Embrace the Efficient Market Theory?

Did Ben Graham Eventually Embrace the Efficient Market Theory?
Oct 5, 2017

Today, the interpretation of many of Benjamin Graham's views on investing are often debated.

There's only so much Graham has written and spoken about on various subjects. There have been many new developments in the field since he last did. And it's not like Graham is around anymore to ask for clarifications.

One such subject is Graham's views on the 'efficient market' theory being developed by a few academic professors at the time.

What this theory postulates in short is it is impossible to 'beat the market' because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the theory, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. (as defined by Investopedia).

Did Graham convert?

Many believe towards the end of his career, Graham began to agree with the efficient market theory. In particular, one of his comments during an interview in the Financial Analyst Journal in 1976 seems to have particularly sparked off this impression:

  • I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.
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