Efficient Markets - Markets Respond Quickly

We know that markets are efficient, but that can be an abstract concept. In this video, I used examples to demonstrate market efficiency in action. News about a company stock is almost immediately reflected in its share price.  

When Berkshire Hathaway bought Heinz in 2013, the markets very quickly adjusted to that news and the shares of Heinz immediately traded higher.

In 2020, when Pfizer announced their COVID-19 vaccine, the markets immediately reacted to that news as well, pushing the shares of a basket of US and International Airlines up by 21% in pre-market trading on November 9th.  While the vaccine news didn't have much to do with airlines specifically, the expectations of the future earning potential of airlines improved - pushing the shares of those companies higher.

So, what is the point?  

The odds of picking individual stocks or bonds based on news or widely accepted expectations, and being able to beat the market in the long run, are very slim.  

The market is a very efficient system where new information is almost immediately reflected in prices. Most investors are better served by diversifying their investments across low-cost, broad-based asset-class funds (like Index Funds) and letting the market do the work for them. I hope you enjoy the video.