Okay, the stock market is highly efficient at pricing in all publicly available information
. But it is not perfectly efficient, Alexander Green in Investment U
In addition to everyday market inefficiencies, it's important to recognise that while investors are always self-interested, they are not always rational.
A glance back at history shows that at major market peaks they are too optimistic and complacent, and at market lows they are too pessimistic and fearful.
These periods provide superb buying and selling opportunities for the contrarian investor.
How do efficient market theorists respond to these counterarguments? Incredibly, by claiming that bubbles can only be recognised in the rear view mirror.
In 2010, for instance, Mr. Fama told The New Yorker magazine: "It's easy to say prices went down, it must have been a bubble, after the fact. I think bubbles are twenty-twenty hindsight."
But bubbles are created when extreme optimism meets sky-high valuations. And you don't have to practice the dark arts to recognize them.
It's good to remember that the winners of the Nobel Prize in Economics are generally academics, not businessmen or market mavericks. So adopt the best part of their ideas and discard the rest.
How to make you money work hard for you
Specifically, let low-cost index funds form the conservative foundation of your investment portfolio, then boost your returns further by owning inefficiently priced individual stocks.
If you're successful, your future returns will be substantially higher.
And one of the surest ways of beating the market is to watch what company insiders do with their money... and then do the same thing. As buy signals go, it doesn't get better than when CEOs, chairmen or high-ranking corporate officers risk large sums of their own money on shares of their companies.
Remember, these guys know things about their company's prospects that no one else does - or could.
So there you have it, how you can beat this Nobel Prize winning investment strategy.