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are the best estimate of fair market values. As illustrated in the previous painting, available information and news is “baked in the cake,” and no one has special knowledge that is not already included in the price, except for inside information (which is illegal). No single trader can know more or have a consistent advantage over the millions of other market participants around the world. Markets reward investors, not speculators. Tenets of market efficiency do not state that prices are perfect or that at any given time there are no mispriced securities in the marketplace. Rather, these tenets assert that because prices reflect all known information, mispriced securities cannot be identified in advance.

Wealth Warning for Stock Pickers Stock pickers are inherently biased about their abilities to pick winning stocks. In a study titled, “Are Investors Reluctant to Realize Their Losses?,”49 Terrance Odean, professor of finance at the University of California, Berkeley, analyzed the activity of 10,000 discount brokerage accounts. Odean’s findings, published in the October 1998 issue of Journal of Finance, showed that investors habitually overestimated the profit potential of their stock trades. In fact, they would often engage in costly trading, even though their profits did not cover even their transaction costs. Odean’s research showed investors believed they had unique information which would give them an edge, when in reality they operated under widely disseminated information. On average, the stocks investors bought underperformed the stocks they sold. In a follow-up paper, “Trading is Hazardous to Your

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