Another useful way to apply EMH to the real world, especially considering that real world markets are not perfectly efficient, is in terms of asymptotic behavio

Another useful way to apply EMH to the real world, especially considering that real world markets are not perfectly efficient, is in terms of asymptotic behavior, hyperbolas, mathematical limits. Paradoxically, Warren Buffett's investing performance, far from being a counterexample to EMH, plays an integral part in the drive towards perfect efficiency. But this drive will never be completed. It's very easy and common to make the leap from EMH, a purely theoretical construct, to asserting that real world markets are perfectly efficient and must therefore behave as EMH entails. This view is mistaken, and the author merely knocks down a straw man with the Buffett counterexample. Instead, in order to use EMH in the real world, one must first judge the efficiency of the market in question. The broadest, deepest, most active and open markets are the most efficient, which is why "the stock market" (in the US) is a favorite example and testing ground. The idea is not that it's perfectly efficient but that it's the most efficient we can access. The real question is: is it efficient enough for efficiency effects to dominate? A fair view of the evidence (i.e. not hunting for or cherry-picking counterexamples) suggests that efficiency effects do dominate. EMH is really about the futility of systematic approaches to achieving excess returns. It was conceived (in some part) as a general refutation to systematic investment proposals. Systems could range in sophistication from always bet on black to virtual Warren Buffett. Only where the system sophistication exceeds (in some sense) the current market efficiency is it able to collect. Soon the unsophisticated have no chips, and the efficiency rises accordingly. The bar is raised, over and over, chewing up new challengers and enshrining champions. That some real world markets are subject to EMH effects also explains the cliché about the highly paid fund manager who performs no better than a dart-throwing monkey. If you find this idea appealing yet EMH is icky, you should check your priors.