EMH R.I.P.

If you aren't reading anything and everything you can by James Montier, stop reading this post and do so immediately.

Here is a profile of Montier from Fast Company magazine.

Montier is one of the smartest investment strategists in the world, and his intellect comes not from out-calculating people but by out-thinking people.

Below are some Montier's thoughts on the Effecient Market Hypothesis (EMH):

This approach has also given rise to the obsession with benchmarking, and indeed a new species, Homo Ovinus whose only concern is where they stand relative to the rest of the crowd, the living embodiment of Keynes edictThat it is better for reputation to fail conventionally, than succeed unconventionally.

The EMH also lies at the heart of risk management, option pricing theory, and the dividend and capital structure irrelevance theorems of Modigliani and Miller, and the concept of shareholder value, all of which have inflicted serious damage upon investors. However, the most insidious aspects of the EMH are the advice it offers as to the sources of outperformance. The first is inside information, which is, of course, illegal. The second, is that to outperform you need to forecast the future better than everyone else. This has sent the investment industry on a wild goose chase for decades.

Some final thoughts on EMH and the concept of calculating too much and thinking too little from Mr. Munger:

“Some of the worst business decisions I’ve ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you but it doesn’t. They teach that in business schools because, well, they’ve got to do something. ”