Question

The popularity of technical analysis is a clear rejection of the Efficient Market Hypothesis.

Using examples, discuss whether you agree with this statement. 5-600 words

Answer 1

Technical analysis: means a trader can predict the future market by gaining knowledge from the past and pattern from the previous trends in history. Basically it is predicting price movements in the financial markets, by using historical price charts and market statistics.

Efficient market hypothesis(EMH): Suggest that the stock prices carry all the information and value investing cannot be done because it is not possible for the investor to outperform by picking good stocks and on perfect time. Thus you should invest low and with a passive portfolio.

I completely agree with the statement as many of the great investors have proved in past that the value investing is key for investors. A company cannot always be listed at the best price on the stock market. as we see the case now as coronavirus due to which many of the companies all around the globe are shut down and production is very less. Thus many of the companies prices fell down in the market as investors feared they will lose money and hence they start selling the stocks due to which prices fell down. As we see the recession of 2008 many of the investors brought the companies share which at that time were available at very low prices and provided them with the huge return in upcoming years when the prices went above and the economy turned healthy.

The ace investor of all time Mr Barren buffet was not investing from a very long time so many people criticised him and told that his theories are getting wrong now and he feared the market now. but as the recession approached in 2008 he invested heavily and it turned him with a huge profit. In an interview, he told that the market always repeats the history and you should wait for the perfect time to invest when the good stocks are available at low prices. Barren buffet of India Mr Rakesh jhunjhunwala also has the same theory which tells buy right and hold tight. When you feel that the stocks are overvalued and the listed prices are not enough to justify them sell the stocks and earn profit and air for the next time.

So, in my opinion, The popularity of technical analysis is a clear rejection of the Efficient Market Hypothesis is justified.Though many of the investor believe in this.