Question

You believe in EMH. What is your portfolio management strategy and what does it involve?

Answer 1

The efficient market theory says that all public information is reflected in the share price and any attempt to beat the markets in order to generate higher returns is futile since any new information is reflected in a negligible amount of time.

As a believer in EMH, we know that all the information available publicly is already included in the current stock prices. Hence, any attempts of active investing or stock analysis do not provide any higher returns in the longer run. Clearly, on the basis of EMH, the portfolio management strategy would involve investing in low-cost, low-expense ratio index funds and abstaining from investing in any activly managed funds. Here, the goal of any index fund is to replicate the market.

Accordingly, the strategy for is investing in index funds and ETF's which already contain all the large-cap stocks. For eg. S&P500. Also, it is easier to believe that there is much more information available about large-cap stocks and EMH holds true for these stocks more than any other.