Talking about the valuation of individual securities. Individual securities analyses pre-date the concepts of efficient markets,...

Talking about the valuation of individual securities. Individual securities analyses pre-date the concepts of efficient markets, the CAPM, and modern portfolio theory. If markets are efficient does it make any sense to learn about stock valuation? Why or why not?

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Expert Solution

Financial theories are very subjective i.e; these are all hypothesis developed with no proven laws, hence perceived differently by all the investors in the market.
Investing in the market is a mixture of relative beliefs of beliefs about the future performance and some self observations of the market movements utlimately leading to the choice of portfolio.
Hence ,the importance of valuation comes into the picture even when the markets are perceived efficient.
For example, one investor might value stocks based on the future growth potential and other may give more importance to the undervalued markets opportunity, might leading them to arrive at different true fair value of the stocks , through differential assessment process even in an efficient market environment, enabling them to possibly earn greater than the average market return.

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jeff jeffy answered 1 year ago

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