POLL: QB Aaron Rodgers disproves the EMH

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Are markets efficient?

Yes
34
61%
No
14
25%
Other (please explain)
8
14%
 
Total votes: 56

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schuyler74
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POLL: QB Aaron Rodgers disproves the EMH

Post by schuyler74 »

In the 2005 NFL draft, quarterback Aaron Rodgers fell to the 24th pick. Although many of the earlier teams had him ranked higher than that, when it was their turn to select a player they chose a position other than QB because at that time their need was greater for a non-QB. For over 5 years now, Aaron Rodgers has consistently ranked in the top 5 NFL quarterbacks.
In [url=http://www.bogleheads.org/forum/viewtopic.php?f=10&t=139914&newpost=2071651#p2070601]another thread[/url], berntson wrote:Some investors (with low taxes or lots of tax-advantaged space) may benefit by overweighting tax-inefficient investments. Suppose that the market prices REITs and the TSM to have the same after-tax expected returns. Then investors with tax-advantaged space can improve returns by overweighting REITs and putting them in tax-advantaged accounts (because REITs can only have the same after-tax expected returns as the TSM by having higher before-tax expected returns). ... Municipal bonds are less valuable to low-tax investors than they are to high-tax investors. Conversely, REITs are more valuable to low-tax investors than they are to high-tax investors. Whether you should overweight or underweight REITs would then depend on whether your taxes are higher or lower than they are for the overall market.
This sounds to me just like the NFL draft example above: REITs (and Municipal Bonds, in reverse) are more valuable to certain types of investors at different phases of their investing careers. Someone with a low income may choose to snatch up REITs because all their retirement investing is in tax-advantaged accounts; while the opposite is true for a high-income earner who instead may prefer to buy Munis in order to avoid paying taxes each year.
Wikipedia wrote:The efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made."
But this isn't true! For the same reason that the Green Bay Packers had Aaron Rodgers fall into their lap at pick #24, some investors can buy certain investment vehicles at a better value than other investors can. A low-tax investor will value the same REIT/muni very differently than a high-tax investor will -- even though the same information is available to both.

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in_reality
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by in_reality »

Wikipedia wrote:The efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made."
But this isn't true! For the same reason that the Green Bay Packers had Aaron Rodgers fall into their lap at pick #24, some investors can buy certain investment vehicles at a better value than other investors can. A low-tax investor will value the same REIT/muni very differently than a high-tax investor will -- even though the same information is available to both.
[/quote]

#1] I don't think anything in the world of sports is going to prove or disprove anything in investing. You might have an interesting analogy, but Football tells us nothing really. Sorry. If you buy a REIT, your REIT will have a return that does not have anything to do with your equity holding. While they might be correlated (due to the common influence of other things like the economy or interest rates), they do not really influence the performance of the other. If you lack one position in sports, it can affect the performance of other positions. What if you have a qood QB and no receivers? Even knowing Aron is really good, how can you make use of him without any receivers? Can he catch his own passes. No and he needs a line and probably a running back too. REITs don't need small value to catch their passer or bonds to block the rushers or large cap for a running game. Let's see if I tilt to small value my REIT holdings will return 1% more? No. No. No. If I draft a running back, we can start making those third and ones and get into the playoffs. Yes. Yes. Yes. We don't need a really good QB on the bench because he won't help our running game.

#2] People who buy the same muni will receive the same return on it. Just because a high income investor favors it for tax reasons, it does not mean their return is higher than a low income investor. If you and I have the same investments and your tax rate is higher, does that mean I am a better investor and have beaten your returns? I think we have the same returns.

#3] I don't think your analogy holds risk equal. There is a risk to drafting a quarterback you don't need. What message will it send to your current QB? What if they feel you are trying to replace them? What if the locker room splits into different camps about who they want on the field? Similarly, what if your defensive line gets run through at every critical juncture because you lack an imposing lineman, wanted to draft one but took Aron instead and now have an awesome QB (or two) on the bench while your offense can't get on the field until the other team scores by running through the middle of your defense. All the other teams faces risk if they did not draft for need. A team who needed a QB did not have that same risk.

The value of sports are over-hyped I think. Yeah I was a college athlete and it had it's benefits but I invested too much time and energy into it.
magneto
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by magneto »

Have voted other. My view is that while markets are generally efficient, they can and do swing to extremes. Think :-

tulip bulbs
south sea bubble
florida real estate
nifty fifty
dot-coms
sub-prime housing bubble
2008/9 stock collapse

However most of the time when psychological balance and common sense prevail markets are pretty efficient. Does that view mean semi-efficient?
'There is a tide in the affairs of men ...', Brutus (Market Timer)
Rodc
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by Rodc »

I have from time to time had the thought that we get a bit of a free lunch from tax advantaged investing. To the extent that prices are set by big players who pay taxes on interest or cap gains, and we don't, we get a bit better return. On the other hand, I don't know enough about who pays what tax to know the potential size of such an effect. Does Harvard pay taxes? Do insurance companies? And at any rate is this something that should drive asset allocation other than fund location and say the choice between taxable vs tax free bonds? My guess would be no.

FWIW I don't think this has anything to do with market efficiency. We all have different income taxes and that does not make the bond market inefficient.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
etarini
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by etarini »

Aaron Rodgers? He was a lock compared to Tom Brady: 6th round, 199th pick.

excerpted from Wikipedia:

In Brady's thirteen seasons as a starter, the Patriots have earned five trips to the Super Bowl, winning three.

He has also won two Super Bowl MVP awards, two league MVP awards (2007, 2010), has been selected to nine Pro Bowls, and has led the Patriots to more division titles than any other quarterback in NFL history, with eleven.

He is currently seventh on the all time list for career passing yards and fifth for career touchdown passes.

He also set the record for most consecutive playoff wins with 10 and in 2007 he led the Patriots to the first undefeated regular season since the institution of the 16-game schedule.

Brady has thrown for more passing yards than any quarterback in NFL postseason history and is third for career postseason touchdown passes.

Eric

He also has the sixth highest career passer rating of all time (95.7) among quarterbacks with at least 1,500 career passing attempts.

Brady and Joe Montana are the only two players in NFL history to win the NFL Most Valuable Player and Super Bowl MVP awards multiple times.

Brady and John Elway are the only two quarterbacks to lead their teams to five Super Bowls.
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in_reality
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by in_reality »

Rodc wrote:I have from time to time had the thought that we get a bit of a free lunch from tax advantaged investing. To the extent that prices are set by big players who pay taxes on interest or cap gains, and we don't, we get a bit better return.
At the very best, you are losing less to taxes. Market returns are calculated before taxes, so reducing your taxes will still not beat the market which is the OPs suggestion.

Let's say you do go 100% Munis and your return is higher than the total market. Is EMH disproved? I don't think so. What you did was take extra risk by concentrating in Munis and if a string of Detroits had happened, things would be very different. So I'd say you were compensated for additional risk.

I don't see how you tilt without taking a concentration risk. The fact is different asset classes will perform differently and while we all have predictions, it's not really known which will do well. Thus by choosing any asset class in a higher proportion you are taking additional risk (that the chosen class will underperform going forward).

So, yes munis are more valuable to me than someone else who won't get the same tax break, and knowing I have this "cushion" I am more will to take concentration risk. Still that does not disprove EMH. What I have is a tax incentive to take concentration risk. I am not outperforming the market with the same level of risk.
rkhusky
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by rkhusky »

magneto wrote:Have voted other. My view is that while markets are generally efficient, they can and do swing to extremes. Think :-

tulip bulbs
south sea bubble
florida real estate
nifty fifty
dot-coms
sub-prime housing bubble
2008/9 stock collapse

However most of the time when psychological balance and common sense prevail markets are pretty efficient. Does that view mean semi-efficient?
I'm not sure these examples violate the EMH (at least the recent ones). The Wikipedia definition above states "...given the information available at the time the investment is made." You can't judge the efficiency of the market based on hindsight. I don't think you can even base it on mistakes, such as confusing ticker symbols, which has happened a few time recently, because those mistakes are not consistent. "... one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis."
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by rkhusky »

schuyler74 wrote: A low-tax investor will value the same REIT/muni very differently than a high-tax investor will -- even though the same information is available to both.
Who is most responsible for setting stock/bond prices? Mutual fund investors, day traders, pension funds, low-tax investors, high-tax investors, governments?
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JoMoney
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by JoMoney »

How do we know Aaron Rodgers has any skill? Can you prove he hasn't just been really lucky? Maybe we should have an Efficient Football Hypothesis that explains all professional sports players are efficiently equal and can not achieve more wins than another except by what is explained by luck.
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staythecourse
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by staythecourse »

This poll is making a HUGE assumption that the NFL scouting process is efficient. I am sure it has been proven over and over again HUGE mistakes are made in scouting in all professional sports. How does Tom Brady or Terrell Davis become All Pros? How does Ryan Leaf or that Qb from LSU that went to Oakland become high draft picks? There is no way the draft is efficient. The only thing the draft has proven is it is total crapshoot and nothing more. Even the experts admit the same.

Good luck.
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Rodc
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by Rodc »

in_reality wrote:
Rodc wrote:I have from time to time had the thought that we get a bit of a free lunch from tax advantaged investing. To the extent that prices are set by big players who pay taxes on interest or cap gains, and we don't, we get a bit better return.
At the very best, you are losing less to taxes. Market returns are calculated before taxes, so reducing your taxes will still not beat the market which is the OPs suggestion.
If Mr Market is considering investment X and is paying 15% in taxes, and Mr Market decides he needs an expected return of 8.5%, Mr Market will price it for an expected return of 10%.

In my 401K I get to buy at the same price.

If we both buy and sell at the same time I make more money.*

That can be characterized as making more or losing less to taxes, depending on how you view the world.

I still come out ahead of where I would be if Mr Market did not factor in taxes.

*Actually have to work through tax advantaged growth and then paying income tax out the back end
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by rkhusky »

staythecourse wrote:This poll is making a HUGE assumption that the NFL scouting process is efficient. I am sure it has been proven over and over again HUGE mistakes are made in scouting in all professional sports. How does Tom Brady or Terrell Davis become All Pros? How does Ryan Leaf or that Qb from LSU that went to Oakland become high draft picks? There is no way the draft is efficient. The only thing the draft has proven is it is total crapshoot and nothing more. Even the experts admit the same.

Good luck.
Is market efficiency the same as market correctness?
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by in_reality »

Rodc wrote: If Mr Market is considering investment X and is paying 15% in taxes, and Mr Market decides he needs an expected return of 8.5%, Mr Market will price it for an expected return of 10%.
Mr. Market does not pay taxes though.

If the market-price is arrived at by the average tax coming out to be 15% so that demand has it priced for an expected return of 10%, and you and I both invest, how much we pay in taxes is irrelevant to the EHM.

To say that an investor who holds the total market in an IRA has higher returns than someone who holds the total market in taxable is non-sensical when the market returns are exactly equal. Yes one of them is keeping more of their money but no-one is beating the market by holding the market - they are both receiving exactly market returns. Someone does have less than market returns after paying taxes but the fact is they earned market returns.

So no I do not believe that IRAs or Aaron disprove the EMH.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by manwithnoname »

EMH has always been a theory invented by metric men in search of validation. EMH exists to provide full employment to academics, analysts and financial journalists who cannot find gainful employment.

EMH's existence is similar to Voltaire's comment about the existence of god:

If EMH did not exist it would be necessary for investors to invent it.

In other words if EMH did not exist it would be necessary for professors to invent it because EMH is necessary for investors to believe in something. If EMH does not exist investors would make investment decisions in exactly the same way believing in a theory that is not there.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by Rodc »

Mr. Market does not pay taxes though.
Mr Market is just an average of all investors, many of whom pay taxes. So Mr Market "pays" the average tax.

The question then is what average. Small passive investors like us investing in 401k do not drive prices; active traders drive prices, especially the major ones. To the extent that these active investors pay taxes that drives the effective tax rate that Mr Market uses to determine what price to pay.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by texasdiver »

Speculating on the future performance of a NFL player is no different than speculating on the future performance of a stock.

There are thousands of publicly held companies trading on the stock exchanges today. In 5 years some of them will be the next apple/google/starbucks etc. and will have gone up 1000% and made millions for early investors.

Likewise, there are hundreds of players entering the NFL this year. In 5 years some of them will be superstars making many millions of dollars.

Neither of these points have anything to do with the EMH. FUTURE events are always going to change FUTURE values of both stocks and football players. All the EMH says is that markets are efficient at incorporating CURRENT information into CURRENT prices.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by feh »

EMH seems to assume that the people doing the buying and selling are rational. Quite often, that's not the case.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by placeholder »

It's also silly to compare the NFL draft to a free market not to mention that NFL players are an all or nothing acquisition.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by ogd »

Heck no he doesn't disprove it.

The choice of the QB position as an example is particularly unfortunate. The question immediately brought to my mind this Malcolm Gladwellessay arguing (for half of the piece, before he moves to teaching) that nobody knows how to pick quarterbacks because the NFL game is so different. Quote within fair use limits, hopefully:
But no one is saying that Dan Shonka is somehow missing some key ingredient in his analysis; that if he were only more perceptive he could predict Chase Daniel’s career trajectory. The problem with picking quarterbacks is that Chase Daniel’s performance can’t be predicted. The job he’s being groomed for is so particular and specialized that there is no way to know who will succeed at it and who won’t. In fact, Berri and Simmons found no connection between where a quarterback was taken in the draft—that is, how highly he was rated on the basis of his college performance—and how well he played in the pros.
There are better examples in sports; I'll go with basketball where college skills are much more obvious. Michael Jordan, of all people, was drafted third, behind the future unknown Sam Bowie because Portland thought they needed a center. Kevin Durant was drafted behind future bust Greg Oden because ... ummm... Portland thought they needed a center. Detroit left Wade and Anthony on the table for Darko Milicic. These are just bad decisions by one or two people, without the rest of the market having had a chance to vote on it. Even that is changing, the prevailing wisdom in NBA drafts now is to draft the best you can and trade for what you need, therefore moving more towards market efficiency.

In general, sports is not a good analogy because the assets in question are people (despite not always being seen as such) and people have needs, they take a whole production to move and they're often unpredictable. Mispricings can't be corrected in milliseconds.

I still believe in the substance of EMH insofar as it affects me, which is that neither myself or fund managers I can pick can do better than the market prices. I certainly believe that EMH is the baseline at least and any deviation requires elaborate explanations and not hand waving about past futures.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by rkhusky »

feh wrote:EMH seems to assume that the people doing the buying and selling are rational. Quite often, that's not the case.
If only people were consistently irrational.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by chaz »

Reversion to the mean.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by Atilla »

Organizational excellence is also key.

Farve, traded to Packers in 1992 under Manager Ron Wolf and Coach Mike Holmgren. Wins Super Bowl four years later after 1996 season.

Farve's backups that went on to start for other teams include Matt Hasslebeck (made it to the Super Bowl), Ty Detmer, Mark Brunell and Doug Pederson.

Rodgers drafted in 2005 under Manager Ted Thompson. Becomes starter in 2008 and wins Super Bowl 2 years later after 2010 season.

Meanwhile the Bears show a complete inability to develop top-level quarterback talent. Starters from 1992 - 2010 include (but are not limited to) Jim Harbaugh, Steve Walsh, Erik Kramer, Dave Krieg, Shane Matthews, Cade McNown, Jim Miller, Kordell Stewart, Craig Krenzel, Kyle Orton, Rex Grossman, and Jay Quitler. :mrgreen:
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schuyler74
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by schuyler74 »

texasdiver wrote:Speculating on the future performance of a NFL player is no different than speculating on the future performance of a stock. ... FUTURE events are always going to change FUTURE values of both stocks and football players. All the EMH says is that markets are efficient at incorporating CURRENT information into CURRENT prices.
A scientist would say that any theory which is not predictive is useless. Wikipedia states, "Ideas that do not confer any predictive power are considered at best 'conjectures'. Because they cannot be tested in any way, there is no way to determine whether they are true or false." If the EMH doesn't tell me what to do, then of what use is it?

Maybe asking whether Aaron Rodgers disproves the EMH isn't the right question because perhaps the EMH doesn't matter at all. Going back to the OP:
Wikipedia wrote:The efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made."
The underlined portion is still incorrect if there are some investors who will get an excess return from the SAME product (e.g. a REIT, or a Muni), compared with others in a different tax situation. Specifically, the low-tax vs. high-tax investor will value these products differently -- because their returns will be different! -- as compared with a common third product (say, an index fund with low tax implications for both investors).
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in_reality
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by in_reality »

schuyler74 wrote:
Wikipedia wrote:The efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made."
The underlined portion is still incorrect if there are some investors who will get an excess return from the SAME product (e.g. a REIT, or a Muni), compared with others in a different tax situation. Specifically, the low-tax vs. high-tax investor will value these products differently -- because their returns will be different! -- as compared with a common third product (say, an index fund with low tax implications for both investors).
Nobody is getting an excess return though. Both are getting market returns and one is then paying taxes on it. Putting your money in an IRA and investing in total market does not mean you have beaten the market. Sorry. You got the same returns as I did from my holding not in an IRA.

VTI will return the exact same amount regardless of where it is held (taxable or IRA). Exactly the same amount. The market returns will not be different. -- only the amount you get to keep in your pocket will differ but pocket money is not the same as market returns.

Try it. Buy VTI in taxable and VTI in your IRA. Show me the statements. The returns will be the same. I bet my after-life on it. Prove they are different and maybe we can talk.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by bottlecap »

schuyler74 wrote:But this isn't true! For the same reason that the Green Bay Packers had Aaron Rodgers fall into their lap at pick #24, some investors can buy certain investment vehicles at a better value than other investors can. A low-tax investor will value the same REIT/muni very differently than a high-tax investor will -- even though the same information is available to both.
Image
There are unending number problems with this analogy, which doesn't even hold superficially.

In football, only one team can invest in Aaron Rodgers by spending a draft pick. There is no market and no market competition. In "the market," anyone can purchase and investment and bids against other investors to do so. The draft has very little to do with a "market."

Beyond that, there is very little reliable information about draft picks (at least about how they might perform at the pro level). Draft picks are highly speculative. One would definitely be better to built a team out of existing rosters. This can't be done in football, but can be done in the market, thankfully.

JT
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by hornet96 »

schuyler74 wrote:Maybe asking whether Aaron Rodgers disproves the EMH isn't the right question because perhaps the EMH doesn't matter at all. Going back to the OP:
Wikipedia wrote:The efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made."
The underlined portion is still incorrect if there are some investors who will get an excess return from the SAME product (e.g. a REIT, or a Muni), compared with others in a different tax situation. Specifically, the low-tax vs. high-tax investor will value these products differently -- because their returns will be different! -- as compared with a common third product (say, an index fund with low tax implications for both investors).
You seem to be confusing after-tax returns and asset location (which are specific to each investor) with the efficient market hypothoses, of which there are actually three:

1) Weak-form EMH: Basically says that no one can achieve excess returns by exploiting past volume and pricing information (i.e. technical analysis is a waste of time);
2) Semi-Strong form EMH: Basically says all that information regarding fundamental analysis (P/E ratios, expected earnings growth, dividend discount models, etc.) has already been priced into the security; hence, no one can earn excess returns on this information either.
3) Strong-form EMH: Basically says that all possible information (including material, non-public information) has already been priced into the security.

Obviously, most information stemming from #3 is illegal to trade on, so there *are* necessarily some inefficiencies in the pricing of securities in the market. However, it is exceedingly difficult to capture these excess return opportunities (alpha) on a consistent (and legal) basis.

Any "excess return" you are describing with regards to coming out ahead on an after-tax basis by holding particular assets (REITs) in a tax-deferred (or exempt) account is a consequence of good tax-planning, rather than a violation of the EMH.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by gtmn »

Coincidentally, I just bought the 6th edition of Charles Ellis' book, "Winning the Loser's Game", today. To paraphrase Ellis, amateur tennis is a "loser's game" because the winning player is the one who makes the fewest errors, while professional tennis is a "winner's game" because to win you must not only minimize errors, you must also make winning shots.

Bogle's brilliant insight and his great gift to individual investors is that we don't have to play against the pro's; by buying an S&P 500 Index fund the pro's are essentially our "dream team", according to Ellis. Hence, his first principle for individual investors is to avoid mistakes by buying diversified index funds and sticking to your investment policy. By doing so, we will beat the vast majority of other investors and we maximize the odds of reaching our goals.

When the Packers draft a QB, they are forced to compete against other professionals who share roughly the same information, and they can only choose 1. They win some, they lose some, but they don't have the option to buy the market average performance, or the QB equivalent of the S&P 500 Index. If only the Vikings could buy a QB performance weighted index with which their QB would outperform 80-90% of other QBs over time...

In terms of EMH, there's no way I could pick NFL QB's or individual stocks, even if I had the same information as the pro's. All I know is that both markets are efficient enough for me to lose big if I go toe-to-toe with the pro's. Lucky for me, I can buy the collective judgment of investment professionals via the S&P 500 Index, which leaves me plenty of time to watch the Vikings and Packers. (Believe this Vikings' fan, Rodgers does possess special talent.)
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by tetractys »

Yes and no, to varying degrees. -- Tet
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by packer16 »

I don't think trying to prove or disprove the EMH makes sense. Markets have a tendency towards efficiency. Some are very efficient like the treasury market while other are less so (micro-cap and some emerging markets). The level of efficiency is typically in proportion to the number of folks investing in the market.

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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by SC Hoosier »

I think the OP makes a good point. I disagree with in_reality. Rodgers played a position that not many teams needed that year, so his services were not as highly valued.

I think another interesting point is if Rodgers had been drafted by a team other than the Green Bay Packers he may not have had the same level of success. The Packers might have had superior coaching or an offense that Rodgers felt comfortable with. They also had Brett Favre, a Hall of Fame quarterback on the roster for Rodgers to watch and learn from for a few years. Alex Smith was taken first that year by the 49ers and that situation had far less success that Rodgers in Green Bay.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by IlliniDave »

I voted other. I think stock markets reasonably efficient at reflecting the value investors place on certain characteristics of stocks/companies. However, they are not perfectly efficient. The information value is determined from is not always accurate, is often forward-looking with the commensurate uncertaintly, and sometimes the aggregate opinion is just plain incorrect. Further, not very investor places the same value on the same performance characteristic, so specific stocks aren't equally valuable to all investors at all times. Can any of that be systematically exploited at all times net of costs? I dunno. But I think the that's where at least some of the value premium comes in.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by StormShadow »

I've followed the NFL draft pretty closely since the late 90's, and I remember this draft quite vividly because Rodgers slipped to my Redskins selection spot at #9 and I was screaming at the television for my Skins to pick him.

A lot of this is conjecture, but the biggest knock against Aaron Rodgers wasn't so much anything about himself... instead it was his college coach Jeff Tedford. Tedford had built a reputation for churning out "system" quarterbacks who were productive in college, but would never quite pan out at the next level.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by placeholder »

bottlecap wrote:The draft has very little to do with a "market."
And if fact is designed to be an anti market by giving poorer performing teams which often have less money to spend and are generally (although not always) less attractive for a player exclusive rights to the "asset" without having to outbid richer or more successful "investors".
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Optimistic
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by Optimistic »

Aaron Rodgers? That's hardly great value. He was still valued "correctly enough" to be selected in the 90th percentile of the 2005 NFL draft. If you include all the rookie free agents, he was gauged to be within the 95th percentile of his class. So the "NFL Market" misjudged by a couple of percentiles. Big deal.

If you want a really good example of the failings of EMH, listen to this. I bought a used snow blower at a yard sale last week for $40. It's easily worth $200!!! If Eugene Fama finds out, he's going to croak!
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by placeholder »

Optimistic wrote:If you want a really good example of the failings of EMH, listen to this. I bought a used snow blower at a yard sale last week for $40. It's easily worth $200!!! If Eugene Fama finds out, he's going to croak!
That means you probably haven't used it in the snow yet so 40 bucks might be a fairer valuation than you know since some information might not have been public.
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schuyler74
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by schuyler74 »

Sounds like we've determined three things in this thread:

1. The EMH is "actionable" only in the sense that it tells you not to bother trying to forecast returns. However, telling you what not to do isn't the same as telling you what to do. Therefore, the EMH is useless as it is neither predictive nor truly actionable.

2. A market can only be efficient when there are a very large number of knowledgeable investors where most have the simultaneous (real-time) financial ability to affect prices. This really only applies to large global markets and not smaller public auctions (as in yard sales) nor ones where others cannot directly affect the price you pay (as in a draft).

3. Semantics aside, investors with different tax situations will take home (net) more or less money depending on whether the investment itself is tax-favored or not. An investment such as a REIT is more valuable to an investor in a low-tax situation because its dividends require paying taxes as ordinary income, which implies that -- in an efficient market -- such investors will raise the price higher than a high-tax investor should be willing to pay for it. Similarly, high-tax investors will raise the price for a Municipal Bond higher than a low-tax investor should be willing to pay for it since its slightly lower returns (vis-à-vis a standard taxable Bond) offer the latter no benefit.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by fourwedge »

I have no idea. I hear people say they are but then I see the market do the opposite of what it "should" do with given news and circumstances. I'm just it forever... that's all I know.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by Clever_Username »

SC Hoosier wrote:I think the OP makes a good point. I disagree with in_reality. Rodgers played a position that not many teams needed that year, so his services were not as highly valued.

I think another interesting point is if Rodgers had been drafted by a team other than the Green Bay Packers he may not have had the same level of success. The Packers might have had superior coaching or an offense that Rodgers felt comfortable with. They also had Brett Favre, a Hall of Fame quarterback on the roster for Rodgers to watch and learn from for a few years. Alex Smith was taken first that year by the 49ers and that situation had far less success that Rodgers in Green Bay.
I agree with you overall, but Favre wasn't as cooperative to his backups as many other QBs are. Still, Rodgers had time to take second-team reps, watch film, and do other NFL learning things post-college before having to go in and play. Alex Smith, as you say, went right in. I wonder if the two had been swapped if Smith would have the acclaim that Rodgers has now, with people wondering why the 49ers picked Aaron over Alex. Maybe in a few years, some people will wonder why every team passed on Logan Thomas.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by in_reality »

schuyler74 wrote: Similarly, high-tax investors will raise the price for a Municipal Bond higher than a low-tax investor should be willing to pay for it since its slightly lower returns (vis-à-vis a standard taxable Bond) offer the latter no benefit.
I don't think you can conclude that.

Yes, high-tax investors will be willing to pay more and so the price will rise for low-tax investors. This is surely true.

Still, I don't think it's possible to conclude that the price is higher than what the low-tax investor should be willing to pay. I just don't see this conclusion as warranted.

The reason is we haven't looked at pricing close enough. Consider that foreigners investor who (as of 2011) own 47% of the debt held by the public and 32% of the total US debt aren't in the market for munis. So while a low-tax investor has to contend with high-tax investors pushing up the price, they also don't have to contend with foreign demand.

Thus even if a municipal bond is relatively expensive to a low-tax investor, it may be comparable or cheaper than a non-muni alternative.

I personally do hold munis but am not a high-tax investor because the return is higher than anything else available to me. Am I getting substandard returns? What alternative do I have?

The real risk to me is not paying too much because of high-tax investors upping the price. The real risk is that the muni market will collapse because of something economic or legal.

Actually, I honestly don't see anyone else as getting a higher net than me. How is my net and a high-tax investor's net different? Neither of us are paying taxes on it right? Our net is exactly the same. Exactly.

It's true I have other options comparably favorable to a high-tax investor (because they would have to pay a higher tax rate on it), but given that the muni is the best alternative for both the high-tax investor and I, and we are receiving the exact same after tax return on the investment, how can it be said that I am underperforming the market? OK call me crazy or argumentative but your analysis is not helpful for me to think about what I should do.

Sorry I just don't get it.
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Re: POLL: QB Aaron Rodgers disproves the EMH

Post by Awsi Dooger »

Aaron Rodgers indeed benefited from situational influence, as already mentioned in this thread. He had ridiculous mechanics under Jeff Tedford at Cal, with the ball held awkward and cockeyed. Tedford taught that style to one top prospect after another and only Rodgers had enough talent and good fortune to fully overcome it in the pros.

I've followed the draft for decades. Rodgers is one of the most remarkable transitions at any position. He wasn't drafted until late first round because there were legitimate questions about his game and how it would translate to the NFL. I attended a game his senior year against USC, my alma mater. Very tight game. Rodgers completed a huge percentage of his passes. But it looked pathetic from the stands. Sorority girls sitting next to me were literally laughing at Rodgers for refusing to take risks downfield. "Why didn't he throw it? That was a touchdown. He stinks." I couldn't disagree with them. Rodgers was so brainwashed by Tedford to settle for safe underneath throws that he wouldn't take any shot downfield unless the receiver was basically left alone. Merril Hoge of ESPN spotlighted that USC/Cal game in the weeks leading to the draft, pointing out all the wide open receivers that Rodgers never even attempted to hit.

It likely would have been disastrous if Rodgers had been drafted by another team and thrown into the mix early. There are online articles detailing the terrible mechanics early in his Green Bay career and how the coaching staff had to be incredibly patient with Rodgers, along with getting him to understand the fan unrest and criticism whenever he played poorly in preseason.

I still find it hard to believe that the current downfield gunslinger is the same guy I witnessed at the Coliseum a decade ago.

Anyway, I would argue that the NFL draft is very efficient. The percentage of first rounders who become Pro Bowl players and Hall of Famers towers over the percentages from later rounds. Naturally there will be a normal distribution of high picks who flop and late rounders who become Tom Brady. Big deal. It reminds me of people who love to rip preseason ratings in college sports. They delight in fixating on the inevitable handful of highly rated teams that flounder, for example a Top 10 team that opens 3-3. That leads to mocking the early ratings as worthless, with some goofs suggesting that rankings shouldn't happen until after a month or more. Meanwhile, preseason ratings in college sports are absolute gold. I can't imagine wagering on those sports without the numbers. That 3-3 team becomes comically undervalued late in the season. I'll be looking at my preseason consensus numbers, as always, and find it difficult to restrain laughter when preseason #8 is suddenly pick-em against preseason #64. That's what preoccupation with current form will do. Best of luck to anyone who backs that #64 team. That angle works in college basketball postseason every year. Some sites rank first to last in preseason, all the way to 335, or whatever. When a team that was higher rated in preseason becomes the underdog in postseason, the cover percentage and straight up money line percentage is terrific. It's not an upset at all, merely the disguised superior team, winning as it should.

In investing I often have difficulty comparing the value of one fund or stock against another. That's why I like index funds, with rare exception. I did struggle with the choice of my bond fund, eventually deciding to align with PONDX instead of the Fidelity choice of FSITX. So far it's been the correct move, and not by a small margin. In sports with decades of research in my hip pocket I understand the breakdown, even if it's not always obvious. For example, in the NFL draft the cliff appears at roughly pick 40. Late first round and early second round is tremendous value, in terms of talent and salary cap realities. That's why you often see sharp teams like the Patriots jockeying around in that area. The league is more than willing to overreact to recent form and -- to use 2014 examples -- allow previously top rated players like Teddy Bridgewater, Marqise Lee, Kyle Van Noy and Cyrus Kouandjio to slip to that late first/early second range. As long as a general manager is wise enough to prioritize the big picture and not care about recent paranoia, there are incredible bargains available. Then late second round and below it becomes a crap shoot, requiring special ability from the personnel department. Even if one team demonstrates astute tendencies in those rounds, like Seattle recently, it seldom lasts more than a few years before leveling out.
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