Question

Is it possible to 'make money' in an efficient market? Be precise about what you mean by 'make money' because your response will depend on how you define this phrase.

Answer 1

When we say make money that means being able to generate excess return from the market or market index. Let’s say the S&P 500 Index is generating a return of 9% and you are able to generate a return of 14% or 15% return consistently, year after year with the same amount of risk in the portfolio. There are three types of efficient market, weak form of efficiency, semi -strong form of efficiency and strong form of efficiency. In the strong form efficient market it is very difficult to generate this kind of excess return so you can not really make good money, you will make what every other person is making from the market but in the case of weak form and semi strong form, it is possible make excess return because in real world market are not always efficient and there are inefficiencies in the market so investors who understands these inefficiencies can generate good returns or make good money.