South Africa: Street Dogs - Warren Buffett On Efficient Market Theory

"Let me ... tell you about one of the good guys of Wall Street, my long-time friend Walter Schloss, who last year turned 90. From 1956 to 2002, Walter managed a remarkably successful investment partnership, from which he took not a dime unless his investors made money.
"Walter did not go to business school, or for that matter, college. His office contained one file cabinet in 1956; the number mushroomed to four by 2002. Walter worked without a secretary, clerk or bookkeeper, his only associate being his son, Edwin, a graduate of the North Carolina School of the Arts.
"Walter and Edwin never came within a mile of inside information. Indeed, they used 'outside' information only sparingly, generally selecting securities by certain simple statistical methods Walter learned while working for Ben Graham. When Walter and Edwin were asked in 1989 by Outstanding Investors Digest, 'How would you summarise your approach?' Edwin replied, 'We try to buy stocks cheap.' So much for modern portfolio theory, technical analysis, macroeconomic thoughts and complex algorithms.
"Walter produced results over 47 years that dramatically surpassed those of the S&P 500.
"I first publicly discussed Walter's remarkable record in 1984. At that time 'efficient market theory' (EMT) was the centrepiece of investment instruction at most major business schools. This theory, as then most commonly taught, held that the price of any stock at any moment is not demonstrably mispriced, which means that no investor can be expected to overperform the stock market averages using only publicly available information (though some will do so by luck). When I talked about Walter 23 years ago, his record forcefully contradicted this dogma.
"And what did members of the academic community do when they were exposed to this new and important evidence? Unfortunately, they reacted in all-too-human fashion: rather than opening their minds, they closed their eyes. To my knowledge no business school teaching EMT made any attempt to study Walter's performance and what it meant for the school's cherished theory.
"Instead, the faculties of the schools went merrily on their way presenting EMT as having the certainty of scripture. Typically, a finance instructor who had the nerve to question EMT had about as much chance of major promotion as Galileo had of being named pope.
"Walter, meanwhile, went on overperforming, his job made easier by the misguided instructions given to all those young minds. After all, if you are in the shipping business, it's helpful to have all of your potential competitors be taught that the earth is flat."