For [efficient market hypothesis] to be true, every trader must have access to all relevant information at all times, react instantaneously to changes and make decisions completely rationally.
...this is unnecessarily strong assumption. It is only sufficient that for every publicly traded thing there are enough traders (with enough money) who act upon the supposedly perfect information.
If the market price is balanced, a random person won’t throw it out of balance by selling a few pieces incredibly cheaply (or buying a few pieces incredibly expensively). The wiser players will buy (or sell) the few pieces, and the original price will be soon restored.
I agree that once a price has reached equilibrium, it is likely to stay there if the number of traders is large enough. But stability does not imply objectivity. It may be that this equilibrium is an overestimation, as often happens with technological hypes.
There is also no objective value of a stock that would allow us to separate traders into wise and unwise. Every trader is a human with certain experience, skills, investment strategy, available information, cognitive biases that he is unaware of. And the stock value merely represents the sum of all traders’ characteristics.
I agree with most of the text, however...
...this is unnecessarily strong assumption. It is only sufficient that for every publicly traded thing there are enough traders (with enough money) who act upon the supposedly perfect information.
If the market price is balanced, a random person won’t throw it out of balance by selling a few pieces incredibly cheaply (or buying a few pieces incredibly expensively). The wiser players will buy (or sell) the few pieces, and the original price will be soon restored.
I agree that once a price has reached equilibrium, it is likely to stay there if the number of traders is large enough. But stability does not imply objectivity. It may be that this equilibrium is an overestimation, as often happens with technological hypes.
There is also no objective value of a stock that would allow us to separate traders into wise and unwise. Every trader is a human with certain experience, skills, investment strategy, available information, cognitive biases that he is unaware of. And the stock value merely represents the sum of all traders’ characteristics.