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Are markets really that efficient?


Markets Efficiency at Pricing Securities

Here’s an interesting data set to look at that was first introduced to me by John Huber of Saber Capital.  It’s designed to get you thinking about how efficient the markets are at pricing securities and open your eyes to the opportunities that often exist in some of the best businesses in the world.  It’s important to remember that the stock price you see day-to-day is based upon the volume of people buying and selling that given day which on average is only 1%-3% of all shareholders of the company.  This means that 99%-97% of the other shareholders aren’t selling.  

What is a Stock?

A stock is not just some piece of paper to be traded, though most people treat it that way.  A stock is a percentage of ownership of a real-life business.  The value of a business is ultimately determined by its earnings (profit) over time. In the short-term, the perception from that small 1-3% of shareholders that trade daily is going to drive a stocks price. Over the long term, the business's actual performance is what will matter. Businesses that are profitable and growing those profits will rise in value.  Businesses with declining profits will do the opposite.

Business Stock Chart

The chart below shows you the 10 largest businesses in the US and how much their stock prices have changed over the past 52 weeks.  These are the most widely followed companies in the world, yet their share prices bounce up and down based on sentiment, not necessarily the underlying performance of the business.  Most businesses don’t improve by 50%+ in only one year.  Especially mature ones.

*As of 31st December 2021

Investors don’t need to go searching in some obscure risky sector or geographic region to find opportunities that can provide outsized returns.  If you keep your emotions in check, ignore the herd, and act rationally, you’ll be able to find opportunities right in front of your eyes.

- Brandt Butt, Portfolio Manager/Investment Advisor, CIM®

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Brandt is an Investment Advisor and part of an award-winning team at Endeavour Wealth Management with iA Private Wealth. Brandt’s focus is working with incorporated physicians and dentists between the ages of 35-45 who are looking to set themselves up on the right financial path in hopes of reaching a point where they are choosing to work, instead of having to.

This information has been prepared by Brandt Butt who is a Investment Advisor/Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor/Portfolio Manager can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.


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