During discussion about things where you had strong opinions and then changed your mind, someone mentioned EMH. Do you believe in EMH and if so is it strong or weak version?
I used to believe EMH but not strongly. The pandemic changed my view because I managed to invest some money when the stock market dived and was clearly influenced by overly pessimistic view of the impact of covid. Some might argue that the market reacted to the irrational government measures, so it is not that the case that the market was mistaken. I still think that investors were equally irrationally pessimistic. I reject the view that this is a hindsight and I was merely lucky. I am not big expert and I did not possess any proprietary information. I had the same information as everybody else, I just didn't let my emotions take over me. This is further confirmed that even today when all the events have passed exactly as predicted, majority of people still maintain their mistaken views that covid was very dangerous to young and non-risk population.
It is the only time when I saw the rest of the society to be so wrong in their views and clearly this was my once-a-lifetime chance. I haven't see any other opportunities for easy money so far but I think that people who are experts in their fields and investors might have been able to find more opportunities.
One of them was found by Michael Burry who definitely saw that the 2008 financial crisis was coming. He wasn't just lucky because he had read and analysed all the documents and had to create special investment instruments to profit for it. In this way, it wasn't easily accessible by laypersons like me who have no time or understanding about investment. Again, most professionals were blinded by collective frenzy.
What is your opinion about EMH?
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Notes -
For me the usefulness of EMH is to curtail your hubris. At the very basic level - if you know nothing about let's say deodorant market, you probably should not feel the superiority of your insight after you read a news article about how the whole market is going to crash in a month. Or to word it alternatively, from all possible decisions you can make in large variety of areas and over long period, if you follow the market then you will be "right" much more often than you are going to be wrong.
EMH is information processing claim. As an analogy, imagine that you have a gas in some chamber and you will select one molecule of gas and then measure it's energy. If you know the temperature of the gas (an equivalent of market price) then you can make an informed bet about it. You will be sometimes wrong but it will be hell of a lot better performance compared to random number, or number based on "gut" feeling. Now maybe you can expend a lot of resources to get more information about the gas, about the chamber and so on - but the the downside is that it will only work temporarily as your information (e.g. more precise gas temperature measurement etc.) will be incorporated into the future.
I like that analogy with the gas chamber quite a bit.
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Comparison with gas in a chamber is really strange. Avogadro number (the number of molecules in 1 mole) is 6×10^23 and that amount of gas will occupy about 22 Liters. The number of humans is no more than 10^10. We definitely cannot use gas example to provide intuitive understanding about markets.
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