Isn’t this a wonderful quote from Seth Klarman’s 1991 cult classic “Margin of Safety”?
“…Another reason for the trend toward indexing is that many institutional investors and pension funds believe in the efficient-market hypothesis. This theory holds that all information about securities is disseminated and becomes fully reflected in security prices instantaneously. It is therefore futile to try to out¬perform the market. A corollary of this hypothesis is that there is no value to incremental investment research. The efficient-market theory can be expressed, according to Louis Lowenstein, “as a much-too-simplified thesis that one stock is as good as another and that, therefore, one might as well buy thousands of stocks as any one of them.”
By contrast, value investing is predicated on the belief that the financial markets are not efficient. Value investors believe that stock prices depart from underlying value and that investors can achieve above-market returns by buying … Read the rest of this article!