TITLE

A Response to Lowenstein's Searching for Rational Investors In a Perfect Storm

AUTHOR(S)
Klarman, Seth A.
PUB. DATE
March 2005
SOURCE
Journal of Corporation Law;Spring2005, Vol. 30 Issue 3, p561
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This article presents the author's response to Louis Lowenstein's comments on his article "Searching for Rational Investor in a Perfect Storm." According to the author the stock market efficiency is an elegant hypothesis that bears quite limited resemblance to the real world. For over half a century, disciples of Benjamin Graham, the intellectual father of value investing, have prospered buying bargains that efficient market theory says should not exist. They take advantage of the short-term, relative performance orientation of other investors. They employ an absolute valuation compass, patiently exploiting mispricings while avoiding overpaying for what is popular and trendy. Value investors thrive not by incurring high risk, but by deliberately avoiding or hedging the risks they identify. While efficient market theorists tell to calculate the beta of a stock to determine its riskiness, most value investors have never calculated a beta. Efficient market theory advocates moving a portfolio of holdings closer to the efficient frontier.
ACCESSION #
17549213

 

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