Peter Lynch, a famous former fund manager for Fidelity, suggested that it is wise to invest in stocks based on "local knowledge" -- you invest in the stock of your local supermarket if you notice that it does better than expected. In an efficient stock market, is this a wise recommendation?
According to the efficient market hypothesis, the share prices | |||||||
reflect all available information. Furthermore, you cannot find undervalued | |||||||
stocks based on fundamental and technical analysis, since the market | |||||||
reflects all available information. | |||||||
In an efficient stock market, the local knowledge you have of your local | |||||||
supermarket is public information and is factored into the stock price. | |||||||
In an efficient stock market, the price of the stock already reflects the local | |||||||
knowledge you have and you should not invest in that stock. |
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