69Chapter5. Take the Fifth
K
nowing that the average cycle length of public capital markets
is approximately four years does not give you any tricks to in-
vesting, for there are none. That, plus knowing that stock market
efficiency is at most about 80% true and getting less so, corroborates
the endurance of Ben Graham’s intuition: Mr. Market is alive and
still not well. The question is what to do with the 20% or more of
market pricing EMT does not capture, and the answer is to take
advantage of it.
Maybe Mr. Market’s manic depression has been better diagnosed
if still not widely understood. Maybe the detection of nonlinear de-
pendence and the upsetting of EMT are like superior clinical diag-
noses of bipolar disorder in medicine. Maybe increasing recognition
of the disease has reduced the denial and given some hope of treat-
ability. But these are just maybes.
What is certain is that the market is complex. Also certain, given
the alternative accounts of market phenomena, is that trading rule
tests and other pat formulas for investing remain nonsensical gib-
berish, though not because the market is efficient but because it is
plagued by emotional disorder.
It remains to navigate the market’s Scylla of gloom and its Cha-
rybdis of euphoria. It is possible to do so because there are bounds
to the mania. The greater fool theory may be true: Buying stocks for
profitable resale at some future time requires that there be someone
out there who will buy what you want to sell. It may be true that
the entire market operation rests upon confidence that in the long
run the market gets things right without too much static or dislo-
cation over the shorter run that it takes to get there.
Market traits of irrationality and chaos undermine efficiency
claims, but that is as far as they go. They do not undermine con-
fidence in the long-run stability of markets. To the contrary, they
mean that opportunities exist for the wise and the cautious, those
armed with the tools of business analysis that enable one to decideCopyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use