EFFICIENT MARKET

Lesson 1: Markets Have No Memory

The weak form of the efficient market hypothesis states that the past
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price changes are not expected to affect the future.

Lesson 2: Trust Market Prices

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In an efficient market you can trust prices, for they impound all
available information about the value of each security. This means
that in an efficient market, there is no way for most investors to
achieve consistently superior rates of return.

Lesson 3: Read the Entrails

If the market is efficient, prices impound all available information.
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Therefore, if we can only learn to read the entrails, security prices can

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tell us a lot about the future. The market´s assessment of the company
´s securities can also provide important information about the firm´s

Lesson 4: There Are No Financial Illusions

In an efficient market there are no financial illusions. Investors are
unromantically concerned with the firm´s cash flows and the portion
of those cash flows to which they are entitled. However, there are
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occasions on which managers seem to assume that investors suffer

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It helps in saving money of innocent people who try to
enter into the stock market thinking that they can earn
huge money by following the expert.
Once you know that the stock market is efficient and reflects the
true value of stocks that you will not get into the trap of buying
blindly any stock on the basis of the recommendation of self-made
experts.
Once you are aware that stock markets are efficient than you do
not need to spend too much in analyzing the balance sheet, profit
and loss accounts, and technical charts of stocks.

4 It allows them to make more sensible choices. The only real way
that they can get above average profits through investments in
the different markets is by taking advantage of any abnormalities
when they occur.
Lesson 5: The Do – It – Yourself Alternative
In an efficient market, investors will not pay others for what they can
do equally well themselves. As we shall see, many of the
controversies in corporate financing center on how well individuals
can replicate corporate financial decisions.
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Markets are Irrational

Set aside money to save and
Markets are efficient but history is
invest wisely. filled with examples where stock
markets become irrational due to panic
and stocks were available at throwaway
prices and people made a lot of money
by buying stocks at throwaway prices
Consider starting my during market exuberance.
investment journey with the
information and ideas you
already have, rather than Stock Markets is not Gambling
relying on the expertise of Stock markets take risks but it is not
only on the basis of gut feeling but
other factors like the financial position
of the company, market trend,
technical trends, economic and stocks
Explore at other investing specific news and so on. In simple
options, such as stocks, mutual words risks taken in stock markets are
calculated ones as opposed to
funds, and bonds. gambling which is nothing but pure

1 WORD
COMPETITION
In an efficient market, competition among the many intelligent participants leads to
a situation where, at any point in time, actual prices of individual securities already
reflect the effects of information based both on events that have already occurred
and on events which, as of now, the market expects to take place in the future. In
other words, in an efficient market at any point in time the actual price of a security
will be a good estimate of its intrinsic value.

Competition among investors results in the rapid transmission of new market

information. In efficient markets, prices immediately reflect new information as
investors bid the stock price up or down.

An efficient’ market is defined as a market where there are large numbers of

rational, profit ‘maximisers’ actively competing, with each trying to predict future
market values of individual securities, and where important current information is
almost freely available to all participants.