Course 502: Efficient Market Theory
The Upshot
In this course
1 Introduction
2 What Efficient Market Theory Is
3 The Conclusions of Efficient Market Theory
4 Strikes Against Efficient Markets Theory
5 The Upshot

So is EMH a has-been? Perhaps. But the question for you as an investor is whether you can effectively take advantage of the market anomalies that challenge EMH. Pricing irregularities do exist. So do predictable patterns. But there's no guarantee that they'll continue, nor that you (or your fund managers) will be able to spot them and take advantage of them.

If you believe in EMH, then you should be indexing the market. If you don't believe in EMH, then you should pick your own stocks, or pay mutual fund managers to choose stocks for you. If you see merit in both sides, index part of your portfolio and actively pick stocks with the other part of it. Investing doesn't have to be a choice between efficient market theory and active management. There's room in your portfolio for both.

Next: The Quiz >>

Print Lesson |Feedback | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.