I've been having a debate since I started investing. Is the market random or is it something you can study and potentially beat? If you know me, you know I've been operating under the second assumption. Gradually though I've been swaying more and more into the random camp. Why? Well so far today ⭐ The eviction moratorium was struck down potentially making 3.5 million people homeless ⭐ The PCE inflation report did not meet expectations and showed a slowing in consumer spending ⭐ In his speech today Jerome Powell acknowledged tapering of the Fed's $120 billion in market support operations would occur before the end of this year If this wasn't random and was actually responding to events any one of those on it's own should cause a red day. Well it not only didn't do that I'm currently having my best day of the year in my WeBull account. I've been told not to look a gift horse in the mouth but hey, I don't know about you but I've found discussion generally requires a certain degree of looking. There are two theories regarding the market that speak to this randomness. First is called the efficient market hypothesis and the second is called random walk. Because I thought others might be interested I'm going to run through those real quick with you. The Efficient Market Hypothesis is an investment hypothesis which advances the belief that the prices of financial assets reflect all the available information. Based on this, it is believed that one cannot consistently ‘beat the market’ based on risk-adjustment only since asset prices will only react to new information. The Efficient Market Hypothesis is one of the main reasons some investors may choose a passive investing strategy. It helps to explain the valid rationale of buying these passive mutual funds and ETFs. So if you're buying index funds you may not have even known you agree with this theory but your actions say that you do. There's definitely some truth to this theory that's provable. Over a 10-year span 80% of professional fund managers fail to beat the index. That means one of two things is true. Either there are a lot of terrible fund managers on Wall Street or the efficient market hypothesis has a degree of truth and things are kind of baked in already. What do I mean by baked in? It means all the information that's out there in the world has been used in order for investors to determine the price of a given stock. This idea that everything is priced in and means that you can't get an edge because there's no information out there to get an edge with. You may have some trades where you do exceptionally well but according to this theory that was a totally random occurrence and has nothing to do with skill. So that's the in a vacuum theory but does it hold up in the real world? The best thing about the Efficient Market Hypothesis is that general consensus dictates that there will never be a 100% efficient market. This essentially means that there will always be profit opportunities in the market.The idea of efficient markets ensures that investors always commit to only exploiting quality trading opportunities in the market. The only way to realise above-average profitability would be to search for short-lived market inefficiencies, such as arbitrage opportunities. Over time, these opportunities will be non-existent in the market, but when available, investors should always ensure they take advantage of them. It is, therefore, important to build comprehensive and relevant knowledge and skills to be able to take advantage of such market opportunities. The Random Walk Hypothesis is a financial theory that states the prices of securities in a stock market are random and not influenced by past events. It suggests the price movement of the stocks cannot be predicted on the basis of its past movements or trend. I'm sure we've all seen these financial publications try and assign some overall market logic as to why the day finished up or down. I get a good laugh out of these everyday. Sure the market could have gone up because of event X but it's equally as likely that some algo trading computer glitched out and bought a bunch of stocks driving the market up. When you consider that 80% of trading volume comes from algo traders (automated programs to buy and sell stocks based on preprogrammed rules) the second option seems more likely to be true on any given day. The theory argues the stock price movements are independent of one another and have the same probability distribution. It says the stocks prices take an unpredictable random path. According to this theory, it is impossible to outperform the market without taking an additional risk as the chances of a stocks future price going up is the same as the chances of it going down. This fluctuation cannot be predicted by looking into its past movement. The theory discards all the methods of predicting stock prices as a futile effort. However, the critics of this theory believe stocks maintain a price trend over time and one can outperform the market by carefully planning entry and exit points without assuming the risk. So that's the rundown what do you think? In the poll below I'm asking you do you think the market is random? #tcardizzle #learning #money #marketanalysis