Those who believe in the Efficient Market Theory espouse that a stock’s price always reflect the total information that is known about a company, so it is impossible to “beat the market,” because it is already priced into the stock. Warren Buffett strongly disagrees.
“It’s built into the system that stocks get mispriced,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “I think Berkshire, generally speaking, has come closer to selling around its intrinsic value, over a 47-year period or so, than most large companies. If you look at the range from our high to low in a given year and compare that to the range high and low on a hundred other stocks, I think you’ll find that our stock fluctuates somewhat less than most, which is a good sign. But I will tell you, in the next 20 years, Berkshire will someday be significantly overvalued, and at some points significantly undervalued. And that will be true for Coca-Cola and Wells Fargo and IBM and all of the other securities that I don’t… I just don’t know in which order and at which times.”
Buffett’s full explanation on mispriced stocks
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© 2022 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.