There is a lot of talk about efficient markets of late. Not 100% what that means exactly…
Somehow the stock market is supposed to be an efficient market where all participants have access to the same information, so therefore there is no ability to make more return than the market.
But how does that explain such great companies, as Shopify, Dexcom, Dominos Pizza, Equinix or Amazon? In theory they shouldn’t exist, so perhaps there is inefficiency in the information about how some companies can build a business that anticipates changes in the future? Maybe people have different ideas about the future?
You typically make the most money in inefficient markets. Where some information about price discovery or future pathways to revenue aren’t clear.
So how do you balance the efficient vs inefficient market as an investor?
We tend to index the efficient markets (large US Blue Chips companies) and seek out active managers in inefficient markets.
There is probably no more inefficient market than early stage venture. We have been investing into early stage venture now for five years, across funds and direct investments.
This has given our clients exposure to companies, such as TearFilm, Alastin, GrayMeta, RobinHood, Retrosense, Bell Weather Coffee and many more.
These have all generated terrific returns for our clients. There have been some problems as well, not all companies make it, but the winners seem to be making up for the losers.
So in the age of people clamoring for efficient markets and price discovery, I say give me the inefficiency – where hopefully skill can overwhelm luck.
Bye for now.