Why Warren Buffett is ahead of the market

Idzin Fama and Richard Thaler, legendary professors at the University of Chicago, recently had an excellent discussion on the efficiency of financial markets. Generally, Fama's arguments looked more convincing, and we can agree with him - the efficient market hypothesis (efficient market hypothesis, EMH) not entirely correct, but is an excellent foundation for further analysis.

Also Thaler, seem to be, was too restrained. EMN has a lot of disadvantages, going beyond problems, raised during the discussion. Одна из них — стабильный успех инвесторов, based on fundamental analysis (a technique for evaluating companies based on their financial performance).
The so-called semi-strong form of the hypothesis states, that market prices reflect all publicly available information. In other words, if EMH is valid, impossible to earn, focusing exclusively on profit and loss statements and balance sheets of companies.

This semi-strong thesis contradicts some classic investment advice.. For almost a century, Securities Analysis by Benjamin Graham and David Dodd has remained the bible of fundamental investors. Applying the principles outlined therein, many titans of investing have earned their fortunes, including Warren Buffett. The Oracle himself from Omaha in 1984 year explained, что действительно эффективный рынок не позволил бы ему добиться такого успеха. Самуэль Ли из MorningStar описал это следующим образом:

“Buffett represents nine different funds, outperforming the market for a long time. They all have only two properties in common: value strategy and maintain personal connections at Buffett. Billionaire stresses, that the funds were not retroactively selected. He concludes with a bold prediction: "Those, who read Graham and Dodd, will flourish "".

Buffett was far less reticent about the efficient market hypothesis., like Thaler.

A fundamental analysis approach will be successful, if two things are true:

1. The market must overlook important intrinsic value information, following from publicly available information.
2. One day the market must realize their importance..

The second point is very important., because if the market doesn't do it, stocks will hang in the investor's portfolio for a long time, nesmotry of dividends and outlets. Если же рынок нач­нет осо­зна­вать, albeit slowly, ис­тин­ную сто­и­мость ком­па­нии, ин­ве­стор смо­жет по­лу­чить при­быль уже через год или два — важ­ный штрих, in the case of a fund, обя­зан­ном по­сто­ян­но де­мон­стри­ро­вать при­быль.
Besides, there is no single reason, по­че­му фун­да­мен­таль­ный ана­лиз дол­жен огра­ни­чи­вать­ся под­хо­дом, described by Graham and Dodd. Basically, any method, ста­биль­но из­вле­ка­ю­щий цен­ную, but little-known information from balance sheets and reports, would violate the principle of efficiency. Recently, a couple of financial economists demonstrated a very simple, общий под­ход к фун­да­мен­таль­но­му ана­ли­зу — воз­мож­но, even more versatile, than Graham and Dodd, — успеш­но пред­ска­зы­ва­ю­щий ди­на­ми­ку акций на бли­жай­шие пару лет. If their findings are confirmed, the work of scientists will deal a big blow to the positions of Eugene Fama and his supporters.

Shonk Bartram and Mark Greenblatt just took stocks and compared their prices to 14 наи­бо­лее часто встре­ча­ю­щи­ми­ся по­ка­за­те­ля­ми в ба­лан­сах ком­па­ний и с 14 — в от­че­тах о при­бы­лях и убыт­ках. That's all. Про­стой ре­грес­си­он­ный ана­лиз. Based on the results of the regression, they calculated the “fair” market capitalization of each company.. If she was above "fair", ком­па­ния при­зна­ва­лась пе­ре­оце­нен­ной; если ниже — недо­оце­нен­ной.

Then the authors investigated the dynamics of stocks in subsequent years., to answer the question: ка­ки­ми были бы ре­зуль­та­ты, если бы они по­ку­па­ли и про­да­ва­ли бу­ма­ги на ос­но­ве своих вы­во­дов? Ока­за­лось, что такая про­стая стра­те­гия при­нес­ла бы им из­бы­точ­ный доход в 4−9% с уче­том всех стан­дарт­ных фак­то­ров риска. Not a bad catch! Slightly less, чем за два года каж­дая stock вер­ну­лась к спра­вед­ли­вой сто­и­мо­сти, при­не­ся при­быль лю­бо­му, кто вос­поль­зо­вал­ся бы со­ве­та­ми ав­то­ров. As proponents of fundamental analysis like to say, the market makes mistakes all the time, but over time it fixes them.

If Bartram and Greenblatt were right in their calculations, and a similar result really takes place, he will deal a very serious blow to the idea, that the markets take into account all publicly available information. Дру­ги­ми сло­ва­ми, corporate reporting contains data accessible to all, unrecorded by the markets (almost two years have passed, before they were noticed). Какой бы ни была кон­крет­ная при­ро­да этих дан­ных, the work of scientists clearly shows: based on them, you can build a completely successful trading strategy

Ко­неч­но, in a sense, the last word may remain with the EMH. How often does it happen, fund managers will read the professors' work and develop more sophisticated versions of their strategy. Price imbalance will soon disappear, and efficient market theorists will be able to declare victory. Anyway, the markets failed to notice and correct the mistake, until scientists reported it. По­хо­же, the followers of Graham and Dodd are right about something.
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