The Argument Against the Efficient Market Theory

1. Mr. Market is a moody guy. Look at any security's price over any 52-week period. It goes up and down, up and down, sometimes with huge percentage differences between highs and lows. But think about it, most likely, the underlying company possesses the same or similar assets, services the same or similar customers, and is run by the same or similar people. If you were buying the entire business through a stock purchase, would these massive multi-million dollar fluctuations make sense?
2. People do beat the market and, under the Efficient Market Theory (EMT), this shouldn't happen. Ben Graham, Warren Buffet, Bill Miller, Joel Greenblatt, Peter Lynch, Seth Klarman, Mohnish Pabrai, I could name more. They may have down years, even a string of bad years, but in the long term, their percentage points are significantly higher than would be expected under EMT. You'd have to say that they were lucky, consistently lucky, over decades for them to fit into EMT. The fact that they all belong to the same value-oriented school of thought indicates something is not right in Efficiency-ville.
3. The Great Depression, Black Monday, the Internet Bubble - How can these possibly be efficient? You'd have to be blind not to see inefficiency in these events. Did the market efficiently price Enron before it collapsed?
4. Let's attack beta as a measure of risk. First of all, if I own a stock, massive upward volatility compared to the overall market is what I want. It's a good thing. Second, before I decide to buy a stock, I would prefer massive downward volatility. The price I pay sets the return when I eventually sell. Volatility is the value investor's friend, not the enemy.
5. Human beings are emotional and imperfect. The idea that enough emotional and imperfect people buying and selling stocks will cause perfect pricing, all the time, is counter-intuitive. For that to happen, for ever person who is overly optimistic on a stock, there would need to be a counterpart who is overly pessimistic on a stock. Seems more likely one side will be more weighted then the other and it will fluctuate over time.
6. EMT strictly uses past data which may not apply in the future. It is driving using your rear view mirror.
7. The real reason we have the EMT is because it is clean and some very smart people won some Nobel Prizes writing about it. Its assumptions, whether true or not, are needed for complex mathematical models to work. People, being emotional and imperfect (see #5), don't fit well into mathematical models. The solution to assume collective perfection in pricing strikes me as a convenient shortcut, or worse, intellectual dishonesty.