The price of an asset in an open market reflects the consensus view of all available information. But the consensus is not the same as correct.
An example of this can be seen in the price of Yahoo stock in the dotcom era. The stock was worth both $237 and $11 in the same 18-month window. That is not enough time for the underlying value of the business to change so materially that the stock price range is correct. The market was therefore wrong, at least once.
The efficient market hypothesis therefore explains how prices move based on new information and average perception, but it does not guarantee they arrive at the right answer.
Connections
Link Explanation: If the efficient market hypothesis is often right, but sometimes wrong, beating the market depends on disagreement with the broad consensus. Second-level thinking is a tool for thinking through the consensus and the second-order implications, which may or may not lead to a well-founded counter-factual opinion.
Reference
🟢 The Most Important Thing Uncommon Sense for the Thoughtful Investor