{"version":"1.0.0","segments":[{"startTime":5.115,"endTime":8.645,"body":"This is the final lecture in my series of lectures this year."},{"startTime":9.105,"endTime":11.765,"body":"And these lectures have been about the big ideas of finance."},{"startTime":12.465,"endTime":14.725,"body":"And so I've talked about five of those ideas already."},{"startTime":14.905,"endTime":18.485,"body":"And this is the final idea, the idea of market efficiency, right?"},{"startTime":19.265,"endTime":24.095,"body":"So all these ideas, as I've always noted and before all my lectures, and this"},{"startTime":24.095,"endTime":28.925,"body":"is, this is a plug, is basically taken from my textbook, which has six chapters."},{"startTime":28.945,"endTime":30.245,"body":"One for every idea of finance."},{"startTime":30.385,"endTime":32.925,"body":"So everything I talk about comes straight from there."},{"startTime":33.825,"endTime":35.885,"body":"Anyway, so what are these six ideas?"},{"startTime":36.425,"endTime":38.965,"body":"The first idea of finance was that of net present value."},{"startTime":39.275,"endTime":43.56,"body":"This is probably the only idea of finance which did not win a Nobel Prize,"},{"startTime":43.56,"endTime":47.845,"body":"mainly because it's so obvious that people said, well, you know, you can't pretend to"},{"startTime":47.845,"endTime":49.845,"body":"have, you know, claimed to invent it."},{"startTime":50.145,"endTime":55.428,"body":"So that's an idea which no Nobel Prize was given, but the others five have"},{"startTime":55.428,"endTime":56.485,"body":"won Nobel prizes."},{"startTime":56.745,"endTime":61.34,"body":"So the second idea of finance portfolio theory in the capital asset pricing model brought"},{"startTime":61.34,"endTime":63.485,"body":"a Nobel Prize to Markowitz and Sharp."},{"startTime":64.185,"endTime":68.485,"body":"The third idea of capital structure theory, Nobel Prize to Morlani and Miller."},{"startTime":69.185,"endTime":72.005,"body":"The fourth idea option pricing shows on Merton."},{"startTime":72.185,"endTime":77.845,"body":"The fifth idea, which we covered last time, asymetic information was kerpen and Stalet."},{"startTime":78.345,"endTime":82.325,"body":"But today's idea, the fifth one, the sixth one, market efficiency."},{"startTime":82.755,"endTime":84.725,"body":"Lots of people have won Nobel prizes for this."},{"startTime":85.105,"endTime":90.361,"body":"And what's especially interesting is they won Nobel prizes in several times, several cases for"},{"startTime":90.361,"endTime":93.165,"body":"saying exactly the opposite things from each other."},{"startTime":93.905,"endTime":98.51,"body":"So for example, Kahneman is a behavioral psychologist who was the first psychologist to get"},{"startTime":98.51,"endTime":100.045,"body":"a Nobel Prize in economics."},{"startTime":100.505,"endTime":106.325,"body":"He said that markets, people act weirdly in markets and that affects prices."},{"startTime":107.105,"endTime":112.805,"body":"Pharma and Schiller got it in the same year in 2013 for saying exactly opposite"},{"startTime":112.805,"endTime":115.845,"body":"things, pharma said, the market is completely efficient."},{"startTime":116.025,"endTime":117.685,"body":"We don't need to worry about psychology."},{"startTime":118.515,"endTime":121.765,"body":"This is the way we can treat everybody's completely rational."},{"startTime":122.665,"endTime":127.658,"body":"LER got it for saying, well, people are crazy and crazy people affect the market"},{"startTime":127.658,"endTime":128.324,"body":"as well."},{"startTime":128.324,"endTime":129.685,"body":"This is the same year, right?"},{"startTime":129.705,"endTime":134.445,"body":"So they're both getting Nobel Prizes, sharing the Nobel Prize was saying completely opposite things."},{"startTime":134.985,"endTime":137.885,"body":"Taylor got it a few years later for saying that Schiller was right."},{"startTime":138.225,"endTime":139.845,"body":"So who is right?"},{"startTime":139.995,"endTime":142.365,"body":"Well, today I'm going to talk about farmer's idea."},{"startTime":142.715,"endTime":148.045,"body":"Next year's series of lectures, we'll talk more about Schiller and um, and Taylor."},{"startTime":148.515,"endTime":151.285,"body":"Okay, so what are these other five ideas?"},{"startTime":152.385,"endTime":156.685,"body":"At its core, if you remember, finance is just one simple story."},{"startTime":157.145,"endTime":161.788,"body":"The question is, somebody comes to you and says, I want you to give me"},{"startTime":161.788,"endTime":166.431,"body":"some money today, and in return, I'm going to give you possibly a huge amount"},{"startTime":166.431,"endTime":170.765,"body":"of money tomorrow or next year or a hundred years from now or whenever."},{"startTime":171.185,"endTime":175.463,"body":"The point is, you have to pay the money today, but you'll get the money"},{"startTime":175.463,"endTime":176.605,"body":"in the distant future."},{"startTime":177.425,"endTime":180.965,"body":"The question of finances, how much is this promise worth?"},{"startTime":181.265,"endTime":183.405,"body":"That's all we want to find out, right?"},{"startTime":184.025,"endTime":186.445,"body":"So how do you figure out the value of a promise?"},{"startTime":187.105,"endTime":192.205,"body":"The first idea of net present value comes precisely to find out the value of"},{"startTime":192.205,"endTime":192.885,"body":"that promise."},{"startTime":193.785,"endTime":199.05,"body":"So it tells, it tells you if you promised something five years from now, what's"},{"startTime":199.05,"endTime":200.805,"body":"the present value of that?"},{"startTime":201.025,"endTime":203.405,"body":"And you compare it to the value you're gonna pay today."},{"startTime":203.545,"endTime":207.307,"body":"If I asked to pay a hundred pounds, but I'm gonna get back less than"},{"startTime":207.307,"endTime":209.565,"body":"a hundred pounds in the future, I don't invest."},{"startTime":209.665,"endTime":211.565,"body":"If I get back more than a hundred pounds, I invest."},{"startTime":211.565,"endTime":212.845,"body":"That's very straightforward."},{"startTime":213.025,"endTime":213.725,"body":"Common sense."},{"startTime":214.305,"endTime":217.925,"body":"Invest only if you get back more than you spent, right?"},{"startTime":217.925,"endTime":218.485,"body":"Makes sense."},{"startTime":218.995,"endTime":220.565,"body":"There's a general formula for that."},{"startTime":220.905,"endTime":225.091,"body":"The problem with the general formula is to get those numbers back from the future"},{"startTime":225.091,"endTime":227.045,"body":"to today, you need a discount rate."},{"startTime":227.065,"endTime":228.125,"body":"You need an interest rate."},{"startTime":228.585,"endTime":230.405,"body":"So that's the second idea of finance."},{"startTime":230.945,"endTime":235.005,"body":"The second idea of finance asks us what's the right discount rate to use?"},{"startTime":235.745,"endTime":239.097,"body":"And remember the people who came up with this idea were Mark overs and shop,"},{"startTime":239.097,"endTime":240.885,"body":"and they got an Nobel prize for this."},{"startTime":241.345,"endTime":242.365,"body":"So what did they say?"},{"startTime":242.955,"endTime":246.343,"body":"They said, if people come to you and ask you to invest in a company,"},{"startTime":246.343,"endTime":247.925,"body":"what do you need to ask yourself?"},{"startTime":248.625,"endTime":251.725,"body":"You need to say, why should I give money to this guy?"},{"startTime":251.805,"endTime":253.805,"body":"I mean, what could else could I have done with my money?"},{"startTime":254.145,"endTime":258.644,"body":"In other words, what's my opportunity cost of investing in this company?"},{"startTime":259.105,"endTime":263.245,"body":"By investing in these guys, I've given up the opportunity to invest in something else."},{"startTime":263.945,"endTime":267.75,"body":"So the return on that, something else should be the return, which I'm going to"},{"startTime":267.75,"endTime":268.765,"body":"discount these cash flows."},{"startTime":269.715,"endTime":270.005,"body":"Fact."},{"startTime":270.585,"endTime":273.285,"body":"So, but that opportunity should have the same level of risk."},{"startTime":273.715,"endTime":274.965,"body":"What is that level of risk?"},{"startTime":275.435,"endTime":280.919,"body":"Well, Markowitz and Sharp said, the idea is that everybody who's smart holds a market"},{"startTime":280.919,"endTime":281.285,"body":"portfolio."},{"startTime":281.425,"endTime":285.685,"body":"We hold a portfolio consisting of every diversified asset in the world."},{"startTime":286.105,"endTime":291.405,"body":"So the risk is the core variance with that market portfolio that's called the beta."},{"startTime":291.825,"endTime":295.496,"body":"And the CAPM just says the discount rate is a risk free rate plus the"},{"startTime":295.496,"endTime":296.965,"body":"beta times the market risk premium."},{"startTime":297.035,"endTime":299.285,"body":"This what you covered in the second lecture."},{"startTime":300.305,"endTime":303.645,"body":"The third one goes back to the company said, how much should a company borrow?"},{"startTime":303.645,"endTime":305.965,"body":"They have multiple ways of raising capital."},{"startTime":307.035,"endTime":310.785,"body":"They can issue equity, they can go to the bank and they can borrow money,"},{"startTime":310.785,"endTime":313.285,"body":"they can issue, they can use their own retained earnings."},{"startTime":313.285,"endTime":314.245,"body":"What's the best thing to do?"},{"startTime":315.185,"endTime":320.379,"body":"Mullan And Miller said, in a perfect world with no taxes, no government, no lawyers,"},{"startTime":320.379,"endTime":321.765,"body":"that's a perfect world."},{"startTime":323.145,"endTime":329.041,"body":"In that case, it doesn't matter how you finance your investment in a not so"},{"startTime":329.041,"endTime":333.365,"body":"perfect world taxes, you should borrow as much as you can."},{"startTime":333.865,"endTime":335.685,"body":"But firms don't borrow as much as they can."},{"startTime":336.105,"endTime":336.325,"body":"Why?"},{"startTime":336.325,"endTime":338.805,"body":"Not because of yet another imperfection."},{"startTime":339.015,"endTime":339.765,"body":"Those are lawyers."},{"startTime":340.385,"endTime":343.525,"body":"So if you have lawyers, unfortunately firms go bankrupt."},{"startTime":343.595,"endTime":345.445,"body":"There's a cost of financial distress."},{"startTime":345.625,"endTime":350.975,"body":"So firms tweet off the cost of financial distress against the benefits of taking on"},{"startTime":350.975,"endTime":352.045,"body":"a tax sheet."},{"startTime":353.705,"endTime":356.365,"body":"The fourth idea of finance is about options."},{"startTime":356.545,"endTime":359.645,"body":"So what's your ability to change your mind, right?"},{"startTime":359.825,"endTime":363.567,"body":"So someone comes to you and says, gimme money and I will give you back"},{"startTime":363.567,"endTime":364.565,"body":"money in the future."},{"startTime":365.225,"endTime":369.166,"body":"So what you want to say is, can I put in a contract that if"},{"startTime":369.166,"endTime":372.845,"body":"I get more information, I want my money back before the term comes through?"},{"startTime":373.145,"endTime":377.361,"body":"So what is the value of being able to change your mind once you have"},{"startTime":377.361,"endTime":378.205,"body":"made that investment?"},{"startTime":378.945,"endTime":380.685,"body":"That's the idea of options."},{"startTime":380.685,"endTime":382.485,"body":"They're contingent investments."},{"startTime":382.995,"endTime":385.845,"body":"They're contingent on something else happening, right?"},{"startTime":386.105,"endTime":387.085,"body":"So that's the question."},{"startTime":387.345,"endTime":390.045,"body":"And the thing is, can you change your mind after making the investment?"},{"startTime":390.185,"endTime":393.245,"body":"Or can you wait to make up your mind till you get more information?"},{"startTime":394.825,"endTime":397.965,"body":"Now, what are the two common assumptions behind all these ideas?"},{"startTime":399.185,"endTime":401.685,"body":"One assumption is everybody has the same information."},{"startTime":402.425,"endTime":406.605,"body":"The second assumption is everyone analyzes the information in the same way."},{"startTime":408.115,"endTime":412.975,"body":"So in my last lecture on Asymetic information, I relax the first resumption."},{"startTime":413.445,"endTime":416.135,"body":"That is not everybody has the same information."},{"startTime":416.355,"endTime":418.415,"body":"People have different levels of information."},{"startTime":418.675,"endTime":421.215,"body":"That's why it's called asymmetric information."},{"startTime":422.315,"endTime":427.535,"body":"In a world with asymetic information, what we showed was the people who are hurt"},{"startTime":427.535,"endTime":431.015,"body":"by asymmetric information are not the people with less information."},{"startTime":431.595,"endTime":435.295,"body":"That's because the people with less information know they have less information."},{"startTime":435.795,"endTime":437.495,"body":"So they won't pay full price for anything."},{"startTime":437.495,"endTime":441.455,"body":"They'll pay the average price between the good players and the bad products."},{"startTime":442.395,"endTime":446.754,"body":"So the people who are hurt are the people with more information and the superior"},{"startTime":446.754,"endTime":451.113,"body":"product because they unable to convince the less informed people that they indeed have a"},{"startTime":451.113,"endTime":451.695,"body":"superior product."},{"startTime":452.915,"endTime":457.221,"body":"So the ones who love asymetic information are the ones with more information and an"},{"startTime":457.221,"endTime":461.527,"body":"inferior product because they're pretending to have a superior product in order to sell that"},{"startTime":461.527,"endTime":461.815,"body":"stuff."},{"startTime":462.955,"endTime":466.535,"body":"And so good players use signaling to distinguish themselves from the badge players."},{"startTime":466.835,"endTime":470.215,"body":"And of course, if you're less informed, use screening to distinguish them."},{"startTime":470.325,"endTime":474.255,"body":"That was everything we have done in the last five lectures."},{"startTime":475.035,"endTime":476.215,"body":"So what are we gonna do today?"},{"startTime":476.645,"endTime":478.615,"body":"Well, we are going to relax a second assumption."},{"startTime":479.115,"endTime":484.375,"body":"The second assumption, remember, was that everyone analyzes information in the same way."},{"startTime":485.515,"endTime":489.655,"body":"So what does market efficiency mean?"},{"startTime":490.645,"endTime":496.021,"body":"This is a cover of, uh, from taken from the Economist in November, 1997 after"},{"startTime":496.021,"endTime":497.455,"body":"the Southeast Asian crisis."},{"startTime":498.355,"endTime":501.775,"body":"And the economist basically said, well, this guy's on the phone."},{"startTime":502.395,"endTime":504.695,"body":"He says, I've got a stock here that could really excel."},{"startTime":505.495,"endTime":507.095,"body":"Somebody overhears him really Excel."},{"startTime":507.825,"endTime":509.455,"body":"Excel, Excel sounds like Excel."},{"startTime":509.635,"endTime":513.775,"body":"So everybody panics the markets panic saying Sell and markets crash."},{"startTime":513.784,"endTime":515.455,"body":"Crash, market prices crash."},{"startTime":516.215,"endTime":517.135,"body":"Somebody says, this is madness."},{"startTime":517.225,"endTime":517.975,"body":"Can't take anymore."},{"startTime":517.975,"endTime":518.414,"body":"Goodbye."},{"startTime":518.645,"endTime":519.695,"body":"Someone's like, buy."},{"startTime":519.804,"endTime":521.655,"body":"Everybody goes crazy screaming, bye."},{"startTime":522.433,"endTime":526.255,"body":"So the question is, is that what the market is like?"},{"startTime":526.875,"endTime":531.295,"body":"Is that exactly, is that a market or are people careful?"},{"startTime":531.815,"endTime":532.695,"body":"Rational human beings?"},{"startTime":533.235,"endTime":537.989,"body":"Cal, calculate MP, V, do all the steps in finance you have talked about for"},{"startTime":537.989,"endTime":540.525,"body":"the past five minutes and apply them appropriately."},{"startTime":540.985,"endTime":542.725,"body":"That's what we want to find out today."},{"startTime":544.065,"endTime":547.365,"body":"So what did academics think before 1960?"},{"startTime":547.945,"endTime":548.805,"body":"Why 1960?"},{"startTime":549.845,"endTime":555.045,"body":"1960 is where finance, modern finance began before 1960."},{"startTime":555.425,"endTime":559.885,"body":"We were just like the other areas of management strategy, organizational behavior."},{"startTime":560.585,"endTime":564.745,"body":"Uh, well if my colleagues are listening to this on YouTube, I apologize, but they"},{"startTime":564.745,"endTime":566.965,"body":"never watch finance videos, so I'm usually safe."},{"startTime":567.865,"endTime":573.733,"body":"But anyway, so but before 1960s we didn't have a way of thinking about these"},{"startTime":573.733,"endTime":574.125,"body":"issues."},{"startTime":574.225,"endTime":578.725,"body":"We just basically said, you know, we describe what people do, but we didn't have"},{"startTime":578.725,"endTime":579.325,"body":"a theory."},{"startTime":580.585,"endTime":584.845,"body":"So what we were describing, what did people do to analyze companies?"},{"startTime":585.295,"endTime":586.525,"body":"There were two approaches."},{"startTime":587.365,"endTime":587.485,"body":"Approach."},{"startTime":587.545,"endTime":590.525,"body":"One was what we call fundamental analysis."},{"startTime":591.675,"endTime":593.805,"body":"What fundamental analysis means is simple."},{"startTime":594.585,"endTime":599.896,"body":"You sit in front of giant computers like this one, you analyze the companies in"},{"startTime":599.896,"endTime":600.605,"body":"excruciating detail."},{"startTime":601.265,"endTime":605.415,"body":"You figure out like balance sheets, you figure out the income statements, you figure out"},{"startTime":605.415,"endTime":609.565,"body":"everything about them, and then you compute the true value of their shares with the"},{"startTime":609.565,"endTime":612.885,"body":"value of their shares is high, but the market price is low."},{"startTime":612.945,"endTime":615.485,"body":"You buy otherwise you sell pretty straightforward."},{"startTime":615.715,"endTime":617.205,"body":"It's called fundamental analysis."},{"startTime":618.105,"endTime":624.121,"body":"The big proponent of this was actually two people in 1934 who wrote a book"},{"startTime":624.121,"endTime":625.325,"body":"called Security Analysis."},{"startTime":626.275,"endTime":630.765,"body":"That book is in pub, is in print even today, right?"},{"startTime":630.985,"endTime":634.965,"body":"And Warren Buffet wrote a forward written a forward for the latest edition."},{"startTime":635.185,"endTime":640.814,"body":"That's because he was a student of Ben Graham and he attributes all his success"},{"startTime":640.814,"endTime":641.565,"body":"to Benham."},{"startTime":641.565,"endTime":642.885,"body":"This is one of the richest people in the world."},{"startTime":643.105,"endTime":645.085,"body":"And he says, that's what you need to do."},{"startTime":645.435,"endTime":647.085,"body":"This is the approach we need to follow."},{"startTime":647.905,"endTime":654.141,"body":"But then you have another group of people who basically do something called technical analysis,"},{"startTime":654.141,"endTime":655.805,"body":"also known as charting."},{"startTime":656.505,"endTime":659.565,"body":"The idea here is I don't need to know anything about a company."},{"startTime":659.885,"endTime":661.085,"body":"I don't care who the CEO is."},{"startTime":661.205,"endTime":663.685,"body":"I don't care what business model they have, I care about nothing."},{"startTime":664.465,"endTime":669.812,"body":"All I do is I set up a computer like this guy over here who's"},{"startTime":669.812,"endTime":675.16,"body":"stealing his daughter's breakfast, but he's basically written a coding program where all he does"},{"startTime":675.16,"endTime":678.725,"body":"is to analyze prices and he sees patterns in prices."},{"startTime":679.305,"endTime":680.205,"body":"Can I find a pattern?"},{"startTime":680.745,"endTime":681.565,"body":"Can I trade on it?"},{"startTime":681.825,"endTime":682.445,"body":"Can I make money?"},{"startTime":682.875,"endTime":684.885,"body":"Literally, it's all automated."},{"startTime":684.945,"endTime":686.965,"body":"You're not doing anything at all."},{"startTime":687.065,"endTime":688.525,"body":"The computer is doing it all for you."},{"startTime":688.705,"endTime":691.885,"body":"The computer needs to know nothing about the company, it just looks at prices."},{"startTime":692.585,"endTime":694.565,"body":"So these were the two big approaches."},{"startTime":696.305,"endTime":701.562,"body":"And until the 1960s, as I said, we had very little to add, but what"},{"startTime":701.562,"endTime":702.965,"body":"happened in the 1960s?"},{"startTime":703.875,"endTime":708.946,"body":"Well, the first thing was in economics, we came up with this concept of general"},{"startTime":708.946,"endTime":709.285,"body":"equilibrium."},{"startTime":710.315,"endTime":715.547,"body":"What general equilibrium meant was we would take into account people's reactions when deciding how"},{"startTime":715.547,"endTime":716.245,"body":"to react."},{"startTime":716.385,"endTime":720.399,"body":"In other words, I need to look at, I need to figure out in any"},{"startTime":720.399,"endTime":722.005,"body":"interaction how you're going to react."},{"startTime":722.345,"endTime":725.851,"body":"I'm gonna figure out how you're going to react, thinking about how I'm going to"},{"startTime":725.851,"endTime":726.085,"body":"react."},{"startTime":726.425,"endTime":730.036,"body":"I'm going to figure out how I'm going to react, knowing that you're going to"},{"startTime":730.036,"endTime":732.925,"body":"react to how I'm thinking, you're gonna react and goes on forever."},{"startTime":733.545,"endTime":737.726,"body":"To give you a sense of that, let me start by asking you guys a"},{"startTime":737.726,"endTime":738.005,"body":"question."},{"startTime":739.055,"endTime":747.146,"body":"Let's suppose you have a stock price that can range anywhere uniformly between zero and"},{"startTime":747.146,"endTime":748.765,"body":"a hundred, right?"},{"startTime":748.775,"endTime":749.725,"body":"Could be anywhere."},{"startTime":751.065,"endTime":755.342,"body":"All you have to do is to choose a number that is closest to two"},{"startTime":755.342,"endTime":758.765,"body":"thirds of the average of all the numbers chosen in this room."},{"startTime":759.155,"endTime":763.626,"body":"What that means is if everybody chooses a hundred, if your number is 66, you"},{"startTime":763.626,"endTime":763.925,"body":"win."},{"startTime":764.585,"endTime":769.402,"body":"But if everybody chooses 66, your, you have to be close to 44 in order"},{"startTime":769.402,"endTime":770.045,"body":"to win."},{"startTime":770.185,"endTime":774.19,"body":"If everybody be 50, you have to, your number has to be 33 in order"},{"startTime":774.19,"endTime":774.725,"body":"to win."},{"startTime":774.905,"endTime":775.845,"body":"You guys ready to play?"},{"startTime":776.275,"endTime":776.565,"body":"Yeah."},{"startTime":776.915,"endTime":777.965,"body":"Okay, let's do it."},{"startTime":778.385,"endTime":778.805,"body":"Go ahead."},{"startTime":779.225,"endTime":783.101,"body":"Use the scan on your phone and then drag your number to anywhere between zero"},{"startTime":783.101,"endTime":785.685,"body":"and a hundred and tell me what you will pay."},{"startTime":797.735,"endTime":799.155,"body":"You multiply all the numbers by a hundred."},{"startTime":799.215,"endTime":800.275,"body":"So this is like 24."},{"startTime":813.595,"endTime":813.875,"body":"Excellent."},{"startTime":813.975,"endTime":815.955,"body":"So we have about 45 responses here."},{"startTime":816.375,"endTime":817.155,"body":"Uh, 47."},{"startTime":817.785,"endTime":818.355,"body":"Very nice."},{"startTime":821.455,"endTime":826.635,"body":"Of course, if you're an economist, there's only one right answer that's zero."},{"startTime":827.775,"endTime":828.315,"body":"Why zero?"},{"startTime":828.625,"endTime":832.235,"body":"Because the idea is you are anticipating what everybody's doing."},{"startTime":832.775,"endTime":835.715,"body":"So if everybody does a hundred, you have to do 66."},{"startTime":835.735,"endTime":838.835,"body":"But if you're one level smarter, you say, well, everybody's gonna think that way."},{"startTime":839.015,"endTime":843.155,"body":"So they're gonna vote 66, I'm gonna go two thirds of 66, 44."},{"startTime":843.735,"endTime":846.915,"body":"The third level person will say, I know everybody's going to do two levels."},{"startTime":846.915,"endTime":849.355,"body":"They're gonna do 44, so I'll do two thirds of that."},{"startTime":849.895,"endTime":854.595,"body":"And you have to do this backwards until literally the only equilibrium number is zero."},{"startTime":855.725,"endTime":860.385,"body":"As you can see, nobody thinks that way except economists, right?"},{"startTime":860.525,"endTime":861.585,"body":"So the question here is,"},{"startTime":864.285,"endTime":869.505,"body":"Are we economists in the sense that we carefully analyze everything?"},{"startTime":869.685,"endTime":870.665,"body":"Are we human beings?"},{"startTime":871.045,"endTime":874.825,"body":"In this lecture, I'm gonna talk about us being automatons."},{"startTime":874.825,"endTime":878.691,"body":"Basically, economists who think this way, and I'll give you a reason why we believe"},{"startTime":878.691,"endTime":879.465,"body":"that's the case."},{"startTime":880.005,"endTime":885.033,"body":"So coming back in here, what this is basically saying is the nice bit about"},{"startTime":885.033,"endTime":888.385,"body":"general equilibrium theory is that it involves heavy duty math."},{"startTime":889.445,"endTime":891.645,"body":"And math is a really good topic."},{"startTime":892.025,"endTime":892.245,"body":"Why?"},{"startTime":893.155,"endTime":894.845,"body":"Because no one can understand it."},{"startTime":894.945,"endTime":898.72,"body":"So if you're an economist and you use heavy duty math, people will say, wow,"},{"startTime":898.72,"endTime":902.245,"body":"this guy's so smart, they won't question you so you can charge high salaries."},{"startTime":902.505,"endTime":905.805,"body":"That's when finance took off as a respectable academic field."},{"startTime":905.985,"endTime":910.28,"body":"And that's when finance professors began to make more money than any other professor, because"},{"startTime":910.28,"endTime":912.285,"body":"nobody could understand what we were saying."},{"startTime":912.765,"endTime":917.765,"body":"\u003claugh\u003e."},{"startTime":913.665,"endTime":917.765,"body":"So that's the development of modern finance, okay?"},{"startTime":918.585,"endTime":923.845,"body":"So general equilibrium theory at that point made, uh, finance a respectable field."},{"startTime":924.145,"endTime":930.556,"body":"And the idea was, in a market like this, with everybody smart and everybody's analyzing"},{"startTime":930.556,"endTime":935.685,"body":"everybody's behavior, what's happening is that it's a market with perfect competition."},{"startTime":936.385,"endTime":941.205,"body":"And in a perfectly competitive market, there is no such thing as a free lunch."},{"startTime":941.715,"endTime":945.867,"body":"This is something I mentioned in my first lecture last year, and I'm coming back"},{"startTime":945.867,"endTime":947.805,"body":"to that today in the final lecture."},{"startTime":948.785,"endTime":949.525,"body":"No free lunch."},{"startTime":949.835,"endTime":952.965,"body":"This was the basic idea behind market efficiency."},{"startTime":953.465,"endTime":955.445,"body":"No one gives you something for nothing."},{"startTime":956.905,"endTime":960.245,"body":"So what is the definition of an efficient capital market?"},{"startTime":960.865,"endTime":962.765,"body":"The answer is pharma's definition."},{"startTime":963.305,"endTime":970.085,"body":"Pharma basically said, an efficient capital market is a market that's efficient in processing information."},{"startTime":971.075,"endTime":977.053,"body":"That means the price of any security at any time is the value of all"},{"startTime":977.053,"endTime":979.445,"body":"the information available at that time."},{"startTime":980.315,"endTime":984.965,"body":"That means the market price will reflect only the available information."},{"startTime":985.515,"endTime":990.045,"body":"This is an interesting definition, and of course, not everybody believes that."},{"startTime":990.105,"endTime":994.226,"body":"Warren Buffet said I'd be a bum in the street begging with a tin cup"},{"startTime":994.226,"endTime":995.325,"body":"if markets were efficient."},{"startTime":995.345,"endTime":999.427,"body":"So he did not get to be the smartest, you know, one of the richest"},{"startTime":999.427,"endTime":1002.965,"body":"people in the world with, you know, um, apparently believing in market efficiency."},{"startTime":1003.305,"endTime":1005.045,"body":"But we leave that to a side for a second."},{"startTime":1005.585,"endTime":1006.925,"body":"Let me start with an example."},{"startTime":1008.255,"endTime":1012.863,"body":"Let's suppose you have a company, the WhatsApp company, which is developing a new bulb,"},{"startTime":1012.863,"endTime":1017.165,"body":"which will have double the lifespan of bulbs currently available in the market, right?"},{"startTime":1017.825,"endTime":1020.605,"body":"So, but is having problems developing the bulb?"},{"startTime":1021.385,"endTime":1026.168,"body":"The question at this stage is, what will the price of a share in the"},{"startTime":1026.168,"endTime":1027.444,"body":"company depend on, right?"},{"startTime":1027.714,"endTime":1032.525,"body":"Obviously it'll depend on the probability that the new bulb will be developed, right?"},{"startTime":1032.704,"endTime":1036.361,"body":"The higher the probability, the more people willing to pay for a share in this"},{"startTime":1036.361,"endTime":1036.605,"body":"company."},{"startTime":1036.905,"endTime":1042.36,"body":"The sharing in the profits of this company when the company eventually develops a bulb,"},{"startTime":1042.36,"endTime":1042.723,"body":"right?"},{"startTime":1042.785,"endTime":1043.565,"body":"Common sense."},{"startTime":1044.075,"endTime":1050.711,"body":"Alright, now, today, June the 10th, the company announces that a well-known professor will join"},{"startTime":1050.711,"endTime":1057.347,"body":"the company on leave for his university for one year on January 1st, 2025, in"},{"startTime":1057.347,"endTime":1060.445,"body":"order to help develop the bulb, right?"},{"startTime":1061.185,"endTime":1065.34,"body":"The good news is that professor will improve the chances the bulb will be brought"},{"startTime":1065.34,"endTime":1066.725,"body":"to market one year early."},{"startTime":1067.795,"endTime":1073.391,"body":"So the professor joins super smart guy, the bulb will developed one year faster than"},{"startTime":1073.391,"endTime":1073.765,"body":"before."},{"startTime":1074.745,"endTime":1081.804,"body":"The question for you at this stage, is this good or bad news for the"},{"startTime":1081.804,"endTime":1082.275,"body":"company?"},{"startTime":1082.545,"endTime":1083.195,"body":"What do you think?"},{"startTime":1085.195,"endTime":1085.855,"body":"Go ahead and vote."},{"startTime":1087.365,"endTime":1088.255,"body":"Keep your phones open."},{"startTime":1088.435,"endTime":1089.655,"body":"I'm gonna ask a lot of questions."},{"startTime":1101.175,"endTime":1101.465,"body":"Okay."},{"startTime":1101.485,"endTime":1107.043,"body":"The dominant answer is indeed that it's good news and it's probably most likely good"},{"startTime":1107.043,"endTime":1107.785,"body":"news, right?"},{"startTime":1107.825,"endTime":1112.225,"body":"I mean, the guy's an expert, he's gonna, he's going to develop the ball faster."},{"startTime":1112.735,"endTime":1117.345,"body":"Good news, which means if you're an investor, should you buy the shares or not?"},{"startTime":1118.105,"endTime":1120.115,"body":"Obviously you should, right?"},{"startTime":1120.255,"endTime":1122.915,"body":"So, which means the share price should go up, that's okay."},{"startTime":1123.335,"endTime":1126.995,"body":"The question for us is, when does that increase happen?"},{"startTime":1127.695,"endTime":1128.315,"body":"The three dates."},{"startTime":1128.665,"endTime":1133.195,"body":"Date number one, today, professor hasn't joined the company, nothing has happened."},{"startTime":1133.505,"endTime":1137.075,"body":"Professor hasn't joined the company, he hasn't developed anything, nothing."},{"startTime":1137.505,"endTime":1137.795,"body":"Okay?"},{"startTime":1138.425,"endTime":1139.195,"body":"Date number two."},{"startTime":1139.195,"endTime":1140.075,"body":"January 1st."},{"startTime":1140.105,"endTime":1144.78,"body":"Next year, the professor had just joined the company but hasn't actually got around to"},{"startTime":1144.78,"endTime":1145.715,"body":"developing the bulb."},{"startTime":1147.265,"endTime":1149.365,"body":"And then the third date is January 1st."},{"startTime":1149.465,"endTime":1153.65,"body":"Two years from now, the professor has been with the firm for one year and"},{"startTime":1153.65,"endTime":1155.045,"body":"has successfully developed the bulb."},{"startTime":1155.805,"endTime":1156.295,"body":"Alright?"},{"startTime":1156.515,"endTime":1160.658,"body":"So the question for you is, when do you expect the share price to go"},{"startTime":1160.658,"endTime":1160.935,"body":"up?"},{"startTime":1161.155,"endTime":1167.615,"body":"So three dates today, January 1st, next year when the professor joins January 1st, two"},{"startTime":1167.615,"endTime":1173.215,"body":"years from now when the professor actually gets around to developing the bulb."},{"startTime":1187.705,"endTime":1187.945,"body":"Excellent."},{"startTime":1188.485,"endTime":1189.785,"body":"So quite a few answers."},{"startTime":1190.575,"endTime":1195.271,"body":"Most of them saying today, but some saying one year from now, two years from"},{"startTime":1195.271,"endTime":1195.585,"body":"now."},{"startTime":1195.805,"endTime":1199.625,"body":"Oh, okay, let's see what market efficiency means, right?"},{"startTime":1200.395,"endTime":1202.385,"body":"Let's suppose indeed that this is the right answer."},{"startTime":1203.525,"endTime":1209.018,"body":"So that means two years from now, the professor is relatable, the price should go"},{"startTime":1209.018,"endTime":1209.385,"body":"up."},{"startTime":1210.485,"endTime":1212.785,"body":"But if you're smart, when do you buy the share?"},{"startTime":1213.045,"endTime":1214.345,"body":"You don't buy it on January 1st."},{"startTime":1214.605,"endTime":1218.157,"body":"You buy it on December 31st because you, the other guys will buy the share"},{"startTime":1218.157,"endTime":1219.105,"body":"on December, January 1st."},{"startTime":1219.285,"endTime":1220.385,"body":"You buy it one day early."},{"startTime":1220.525,"endTime":1225.593,"body":"So you make money if you're smarter, you buy it on December 30th, if you're"},{"startTime":1225.593,"endTime":1226.945,"body":"even smarter December 29th."},{"startTime":1227.125,"endTime":1232.694,"body":"And in fact you wind your way backwards until literally that's the only day when"},{"startTime":1232.694,"endTime":1235.665,"body":"you can even hope to make money, right?"},{"startTime":1235.925,"endTime":1239.105,"body":"If you wait too, even in one day it's gone too late."},{"startTime":1239.585,"endTime":1243.425,"body":"Somebody else was already bought the shares before you, the share price has gone up."},{"startTime":1244.195,"endTime":1244.485,"body":"Okay?"},{"startTime":1244.625,"endTime":1247.965,"body":"So the idea again here is, remember what's special about today?"},{"startTime":1248.035,"endTime":1248.525,"body":"Nothing."},{"startTime":1248.985,"endTime":1250.085,"body":"The professor hasn't joined."},{"startTime":1250.535,"endTime":1252.085,"body":"There is no new ball being developed."},{"startTime":1252.085,"endTime":1252.845,"body":"Nothing has happened."},{"startTime":1253.385,"endTime":1258.725,"body":"The only thing that's happened is the information about the professor has reached the market."},{"startTime":1259.345,"endTime":1260.605,"body":"That's farmer's definition."},{"startTime":1261.385,"endTime":1265.685,"body":"Prices react to information, not to the event."},{"startTime":1266.075,"endTime":1270.46,"body":"What happens on January 1st when the professor joins nothing, because all the information is"},{"startTime":1270.46,"endTime":1271.045,"body":"right there."},{"startTime":1271.505,"endTime":1275.648,"body":"You don't need the guy to actually develop the bulb to actually buy the shares,"},{"startTime":1275.648,"endTime":1275.925,"body":"right?"},{"startTime":1276.705,"endTime":1280.709,"body":"If new information comes out, the bulb is not as good as before something else"},{"startTime":1280.709,"endTime":1282.845,"body":"is replaceable, then the price will change again."},{"startTime":1283.225,"endTime":1288.805,"body":"But again, it's changing on the basis of information, not on the actual event."},{"startTime":1289.625,"endTime":1291.645,"body":"That's the idea of market efficiency."},{"startTime":1292.595,"endTime":1292.885,"body":"Okay?"},{"startTime":1295.105,"endTime":1298.565,"body":"So an alternative definition of market efficiency is very simple."},{"startTime":1299.345,"endTime":1305.476,"body":"In an efficient market, it's impossible to consistently make abnormal returns on the basis of"},{"startTime":1305.476,"endTime":1305.885,"body":"information."},{"startTime":1307.755,"endTime":1308.045,"body":"Okay?"},{"startTime":1308.705,"endTime":1311.125,"body":"How does this definition make you feel?"},{"startTime":1312.585,"endTime":1313.485,"body":"Let me ask you that."},{"startTime":1317.475,"endTime":1320.965,"body":"It's impossible to make money on the basis of information."},{"startTime":1326.125,"endTime":1328.637,"body":"A lot of people are not, don't really care about it one way or the"},{"startTime":1328.637,"endTime":1328.805,"body":"other."},{"startTime":1328.955,"endTime":1329.245,"body":"Fine."},{"startTime":1329.265,"endTime":1329.805,"body":"That's good."},{"startTime":1329.805,"endTime":1330.565,"body":"These are economists."},{"startTime":1330.705,"endTime":1331.045,"body":"I'm kidding."},{"startTime":1331.565,"endTime":1331.645,"body":"\u003claugh\u003e."},{"startTime":1338.565,"endTime":1339.695,"body":"Okay, excellent."},{"startTime":1340.115,"endTime":1343.732,"body":"So we see quite a few people are sad and indeed it is a sad"},{"startTime":1343.732,"endTime":1344.215,"body":"thing, right?"},{"startTime":1344.295,"endTime":1346.295,"body":"I mean, why are we studying finance?"},{"startTime":1346.435,"endTime":1348.735,"body":"If there is no way to make money on the market, what's the point?"},{"startTime":1349.635,"endTime":1351.375,"body":"Why don't we just have a good time, right?"},{"startTime":1351.405,"endTime":1355.335,"body":"Finance is a good time, but you know, what better terms?"},{"startTime":1356.285,"endTime":1361.182,"body":"Okay, so if you ask the question, do you like the efficient market hypothesis, most"},{"startTime":1361.182,"endTime":1362.815,"body":"people will say, no way."},{"startTime":1363.085,"endTime":1364.215,"body":"This is very dismal."},{"startTime":1364.405,"endTime":1369.064,"body":"This is basically saying there's no way to consistently make money if a market's efficient,"},{"startTime":1369.064,"endTime":1369.375,"body":"right?"},{"startTime":1370.405,"endTime":1374.175,"body":"Unfortunately, not everybody believes this apart from classical finance professors."},{"startTime":1374.175,"endTime":1378.555,"body":"Otherwise you wouldn't have people out there on the Wall Street and other places desperately"},{"startTime":1378.555,"endTime":1380.015,"body":"trying to make money, right?"},{"startTime":1380.395,"endTime":1385.615,"body":"So why does not everybody wholeheartedly believe in the story of market efficiency?"},{"startTime":1386.235,"endTime":1389.135,"body":"One is of course the truth is much less interesting, right?"},{"startTime":1389.395,"endTime":1392.505,"body":"If you, if you say, I made a lot of money in the market, why"},{"startTime":1392.505,"endTime":1393.335,"body":"did you make money?"},{"startTime":1393.515,"endTime":1393.735,"body":"Eh?"},{"startTime":1393.795,"endTime":1394.935,"body":"You know, stuff happens."},{"startTime":1394.935,"endTime":1396.775,"body":"Sometimes you make money, sometimes you lose money."},{"startTime":1397.675,"endTime":1399.535,"body":"People don't like that kind of explanation."},{"startTime":1399.755,"endTime":1402.615,"body":"We like to believe there's a reason for everything we do."},{"startTime":1402.645,"endTime":1404.415,"body":"There's some meaning in what we do."},{"startTime":1404.725,"endTime":1408.055,"body":"Shit happens is not a good, is not a good reason why."},{"startTime":1408.055,"endTime":1409.855,"body":"Most people like to believe, right?"},{"startTime":1410.035,"endTime":1411.455,"body":"The truth is much less interesting."},{"startTime":1411.955,"endTime":1415.055,"body":"The second thing of course is there are lots of patterns."},{"startTime":1415.075,"endTime":1416.655,"body":"We find patterns everywhere."},{"startTime":1416.865,"endTime":1419.575,"body":"Human beings are pattern detecting machines."},{"startTime":1419.995,"endTime":1423.541,"body":"For example, how many of you have ever looked up at the clouds and said,"},{"startTime":1423.541,"endTime":1427.088,"body":"oh, that looks like a person with a big nose, or that looks like an"},{"startTime":1427.088,"endTime":1427.325,"body":"elephant."},{"startTime":1427.325,"endTime":1428.525,"body":"Anybody, right?"},{"startTime":1428.665,"endTime":1429.805,"body":"We all do this all the time."},{"startTime":1429.865,"endTime":1431.525,"body":"We like finding patterns in everything."},{"startTime":1432.105,"endTime":1436.845,"body":"So, and stock prices are beautiful places to find patterns on."},{"startTime":1438.475,"endTime":1444.583,"body":"Like even astrology, I remember on my last flight back from India, I was reading,"},{"startTime":1444.583,"endTime":1445.805,"body":"uh, cosmopolitan Magazine."},{"startTime":1445.805,"endTime":1449.285,"body":"It wasn't my magazine, it was the magazine, the seat next to me."},{"startTime":1449.285,"endTime":1450.165,"body":"Someone, no, I'm kidding."},{"startTime":1450.425,"endTime":1451.765,"body":"It was somebody else's magazine."},{"startTime":1451.765,"endTime":1452.165,"body":"Alright?"},{"startTime":1452.865,"endTime":1454.605,"body":"Not there's anything wrong with reading Cosmo."},{"startTime":1455.345,"endTime":1460.201,"body":"But anyway, so I was looking at my own, uh, horoscope and I was taken"},{"startTime":1460.201,"endTime":1460.525,"body":"aback."},{"startTime":1461.065,"endTime":1462.365,"body":"It described me perfectly."},{"startTime":1462.535,"endTime":1463.925,"body":"Everything about me was there."},{"startTime":1463.965,"endTime":1466.685,"body":"I was kindhearted, I was good, I was generous."},{"startTime":1466.965,"endTime":1467.885,"body":"I was like, this is me."},{"startTime":1468.785,"endTime":1470.605,"body":"But then I realized I was reading the wrong page."},{"startTime":1470.625,"endTime":1474.205,"body":"So it wasn't my horoscope, but every horoscope described me."},{"startTime":1474.205,"endTime":1474.925,"body":"So I was fine."},{"startTime":1475.825,"endTime":1477.205,"body":"Anyway, let's take an example."},{"startTime":1478.035,"endTime":1481.685,"body":"This is the VIX index, the CBU Volatility index."},{"startTime":1482.345,"endTime":1483.525,"body":"Can you see a pattern?"},{"startTime":1488.885,"endTime":1489.845,"body":"I show it to you right here."},{"startTime":1491.525,"endTime":1492.375,"body":"What does that look like?"},{"startTime":1496.215,"endTime":1499.855,"body":"Superhero movie, Batman, right?"},{"startTime":1500.195,"endTime":1502.495,"body":"That's a rare Batman pattern in the stock market,"},{"startTime":1504.605,"endTime":1504.895,"body":"Okay?"},{"startTime":1505.275,"endTime":1507.655,"body":"But you know, you can find these patterns everywhere."},{"startTime":1508.155,"endTime":1509.455,"body":"So here's another example."},{"startTime":1510.525,"endTime":1515.775,"body":"This guy, this guy was extremely annoyed as the Guptas who were running South Africa."},{"startTime":1516.155,"endTime":1520.552,"body":"So he set up two accounts in a very thinly traded account for his own"},{"startTime":1520.552,"endTime":1524.949,"body":"company and he started buying and selling shares to give a big middle finger to"},{"startTime":1524.949,"endTime":1526.415,"body":"the CEO of the company."},{"startTime":1527.955,"endTime":1531.96,"body":"And he was arrested as he was drawing the bottom half of that and put"},{"startTime":1531.96,"endTime":1533.295,"body":"a hundred thousand and fine."},{"startTime":1533.475,"endTime":1535.815,"body":"But yeah, you can find patterns everywhere."},{"startTime":1536.835,"endTime":1541.535,"body":"But wait a minute, we know of traders who made lots of money, right?"},{"startTime":1541.675,"endTime":1547.759,"body":"For example, George Soro, it's well known that in 1992, Britain was trying to join"},{"startTime":1547.759,"endTime":1551.815,"body":"the European Monetary Union as eventually we've had the Euro."},{"startTime":1551.815,"endTime":1558.319,"body":"Instead of having the pound, unfortunately, George Soros felt that the Bank of England had"},{"startTime":1558.319,"endTime":1562.655,"body":"set too high in exchange rate for the pound, right?"},{"startTime":1562.835,"endTime":1566.87,"body":"So what he said was, I'm going to sell the pound to drive the price"},{"startTime":1566.87,"endTime":1568.215,"body":"down and buy foreign exchange."},{"startTime":1568.635,"endTime":1570.735,"body":"The Bank of England was trying to protect themselves."},{"startTime":1571.155,"endTime":1575.973,"body":"So they decided to buy the pound to keep the value up and sell foreign"},{"startTime":1575.973,"endTime":1576.295,"body":"exchange."},{"startTime":1576.795,"endTime":1579.655,"body":"The Bank of England ran outta money before George Soros did."},{"startTime":1579.755,"endTime":1583.693,"body":"So Britain crashed outta the European Monetary Union, which meant that we'd never replaced the"},{"startTime":1583.693,"endTime":1587.632,"body":"Euro with a pound, which then led to Brexit and then you know where we"},{"startTime":1587.632,"endTime":1587.895,"body":"are."},{"startTime":1587.915,"endTime":1592.255,"body":"But, but anyway, he himself made a billion pounds that year."},{"startTime":1593.265,"endTime":1593.555,"body":"Okay?"},{"startTime":1593.695,"endTime":1594.595,"body":"That's one example."},{"startTime":1595.535,"endTime":1602.708,"body":"Warren Buffet, if you had invested $100 in Berkshire Hathaway in 1965, that would've been"},{"startTime":1602.708,"endTime":1608.925,"body":"worth it to to 20 14, 1 $0.8 million, 100 becomes $1.8 million."},{"startTime":1609.465,"endTime":1613.085,"body":"If it invested in the entire stock market, there'd been about $11,000."},{"startTime":1613.795,"endTime":1615.485,"body":"This is way better."},{"startTime":1615.705,"endTime":1618.365,"body":"He, this guy has beaten the market for nearly 30 years."},{"startTime":1619.325,"endTime":1619.685,"body":"Unbelievable."},{"startTime":1620.465,"endTime":1622.285,"body":"Or John Paulson."},{"startTime":1622.915,"endTime":1627.979,"body":"John Paulson was a sort of also ran on Wall Street until he realized in"},{"startTime":1627.979,"endTime":1630.005,"body":"2008 that the market was overvalued."},{"startTime":1630.025,"endTime":1633.125,"body":"The housing market in particular was very highly valued."},{"startTime":1633.505,"endTime":1637.005,"body":"So he created an instrument to short houses and what happened?"},{"startTime":1637.625,"endTime":1641.101,"body":"He made a ton of money When the housing market collapsed, how much money did"},{"startTime":1641.101,"endTime":1641.565,"body":"he make?"},{"startTime":1642.895,"endTime":1645.325,"body":"$3.7 billion."},{"startTime":1645.855,"endTime":1646.205,"body":"Right?"},{"startTime":1646.465,"endTime":1649.005,"body":"Now for most of us, we think about billions of dollars."},{"startTime":1649.005,"endTime":1650.925,"body":"They're like, eh, what the hell is a billion dollars?"},{"startTime":1650.995,"endTime":1652.805,"body":"Very difficult to visualize this number."},{"startTime":1653.985,"endTime":1656.485,"body":"So the way I like to think about is very simple."},{"startTime":1657.195,"endTime":1661.965,"body":"Suppose I were to give you a million dollars, okay, happy, right?"},{"startTime":1662.075,"endTime":1662.565,"body":"Alright."},{"startTime":1662.945,"endTime":1666.325,"body":"Now I want you to go out and spend a thousand dollars a day."},{"startTime":1666.505,"endTime":1667.085,"body":"Can you do it?"},{"startTime":1668.255,"endTime":1671.255,"body":"Probably okay, but you can't take any time off."},{"startTime":1671.255,"endTime":1672.095,"body":"Even if you are ill."},{"startTime":1672.155,"endTime":1673.695,"body":"And you're saying today I just wanna stay in bed."},{"startTime":1673.945,"endTime":1675.175,"body":"Sorry, that's not an option."},{"startTime":1675.195,"endTime":1676.815,"body":"You have to spend a thousand bucks a day."},{"startTime":1677.115,"endTime":1678.295,"body":"We do that, of course."},{"startTime":1678.775,"endTime":1679.015,"body":"Excellent."},{"startTime":1679.085,"endTime":1679.775,"body":"This is my man."},{"startTime":1680.245,"endTime":1681.535,"body":"Alright, fine."},{"startTime":1681.915,"endTime":1684.54,"body":"It means if I give him a million dollars, it would take him three years"},{"startTime":1684.54,"endTime":1685.415,"body":"to get through the money."},{"startTime":1687.285,"endTime":1688.255,"body":"With a billion dollars."},{"startTime":1688.475,"endTime":1691.455,"body":"It would take him 3000 years to get through the money."},{"startTime":1691.975,"endTime":1693.455,"body":"Spending a thousand dollars a day."},{"startTime":1693.725,"endTime":1697.745,"body":"This guy when 3.7 billion in one year, right?"},{"startTime":1697.765,"endTime":1701.505,"body":"So that's 12,000 years of spending a thousand bucks a day."},{"startTime":1701.505,"endTime":1704.505,"body":"And while he's spending the money, of course the remaining money is earning interest."},{"startTime":1704.645,"endTime":1708.105,"body":"So he literally never runs outta money regardless of how much he spends."},{"startTime":1708.605,"endTime":1709.625,"body":"That's one year salary."},{"startTime":1710.205,"endTime":1711.505,"body":"But other people are there too."},{"startTime":1711.845,"endTime":1714.345,"body":"George Soros, 2.9 billion that year."},{"startTime":1714.715,"endTime":1715.865,"body":"Let's take year after year."},{"startTime":1716.335,"endTime":1717.265,"body":"This was 2012."},{"startTime":1717.375,"endTime":1719.985,"body":"Look at the names on that list here you have some names."},{"startTime":1720.245,"endTime":1726.265,"body":"Ken Griffin, Steve Cohen, John Griffin, Andrea Halon, Philip Falcon, James Simmons names."},{"startTime":1726.935,"endTime":1728.345,"body":"Okay, let's look at some names there."},{"startTime":1728.525,"endTime":1733.385,"body":"Ken Griffin, James Simmons, Steve Cohen, Ray Dalio, David Tepper, David Shaw."},{"startTime":1733.555,"endTime":1735.865,"body":"These are the amount of money they earn on an annual basis."},{"startTime":1736.165,"endTime":1743.638,"body":"2.2 billion, 1.7 billion, 1.4 billion 2014, Steve Cohen,  Dalio, George Soros, Ken Griffin,"},{"startTime":1743.638,"endTime":1747.625,"body":"James Simmons, same people again, billions of dollars."},{"startTime":1747.885,"endTime":1754.945,"body":"2015, Ken Griffin, James Simmons, Steve Cohen, Dave Teer, David Shaw, oh, 2020."},{"startTime":1755.485,"endTime":1760.305,"body":"Jim Simmons, Ken Griffin, Steve Cohen, you've got, and Andreas Halston, David Shaw."},{"startTime":1760.305,"endTime":1765.385,"body":"Literally every single year, these guys are earning several billion dollars per year."},{"startTime":1765.685,"endTime":1771.265,"body":"And remember each year is 3000 years of spending a thousand dollars a day, right?"},{"startTime":1772.005,"endTime":1774.505,"body":"So this is the top 20 in 2022."},{"startTime":1775.045,"endTime":1778.225,"body":"So the question is, how am I saying the market is efficient?"},{"startTime":1778.225,"endTime":1781.365,"body":"You can't make money, and these guys are making billions of dollars every year."},{"startTime":1781.825,"endTime":1782.565,"body":"What's going on?"},{"startTime":1782.945,"endTime":1784.885,"body":"How do I reconcile these two together?"},{"startTime":1786.025,"endTime":1788.045,"body":"So what have we done in finance?"},{"startTime":1788.955,"endTime":1791.845,"body":"What we have said is the efficient market hypothesis."},{"startTime":1791.845,"endTime":1796.525,"body":"The NPV and stuff we did right in the beginning said that investors need to"},{"startTime":1796.525,"endTime":1798.085,"body":"find the value of something."},{"startTime":1798.425,"endTime":1803.75,"body":"The expected cash flows divided by one plus a discount rate, and they have an"},{"startTime":1803.75,"endTime":1805.525,"body":"expected discount rate over there."},{"startTime":1805.525,"endTime":1806.325,"body":"They plug it in."},{"startTime":1806.945,"endTime":1811.021,"body":"The problem with the definition is it doesn't tell you what is the expected return"},{"startTime":1811.021,"endTime":1811.565,"body":"to use."},{"startTime":1811.825,"endTime":1814.485,"body":"It just says whatever the market uses is, right?"},{"startTime":1815.545,"endTime":1822.073,"body":"So in other words, the EMA just says the market value is the best S"},{"startTime":1822.073,"endTime":1824.685,"body":"available estimate of the true value."},{"startTime":1824.915,"endTime":1827.365,"body":"That can be more using information set."},{"startTime":1827.545,"endTime":1832.108,"body":"If we don't know what the information set is, we cannot deny that P is"},{"startTime":1832.108,"endTime":1833.325,"body":"equal to P star."},{"startTime":1835.025,"endTime":1836.205,"body":"So let's get back to this."},{"startTime":1836.325,"endTime":1842.565,"body":"So when our markets vision three conditions, condition number one, everybody's irrational, everybody uses the"},{"startTime":1842.565,"endTime":1844.645,"body":"NPV, everybody uses the CAPM."},{"startTime":1844.645,"endTime":1847.285,"body":"Everybody uses all the ideas in finance we have done so far."},{"startTime":1848.585,"endTime":1852.565,"body":"Second, sometimes people are crazy, they're over optimistic or Oprah or pessimistic."},{"startTime":1852.785,"endTime":1856.605,"body":"No problem, as long as they don't behave the same way at the same time."},{"startTime":1857.205,"endTime":1860.845,"body":"I mean, some people are optimistic, some people are pessimistic, they cancel each other out."},{"startTime":1862.025,"endTime":1866.085,"body":"So that means that everybody has to behave the same way at the same time."},{"startTime":1866.085,"endTime":1867.725,"body":"Everybody has to buy shares together."},{"startTime":1867.725,"endTime":1869.365,"body":"Everybody has to sell shares together."},{"startTime":1871.595,"endTime":1875.205,"body":"That means if there, even if they rational, they all behave the same way."},{"startTime":1875.225,"endTime":1878.878,"body":"The smart arbitrage, the big guys like George Soros, like Steve Gohan, all these guys"},{"startTime":1878.878,"endTime":1882.045,"body":"step into the market on the other side and they make the money."},{"startTime":1882.875,"endTime":1885.725,"body":"Okay, so three big stories over here."},{"startTime":1886.185,"endTime":1887.565,"body":"So let's go back to that definition."},{"startTime":1887.775,"endTime":1888.445,"body":"Impossible."},{"startTime":1888.565,"endTime":1894.845,"body":"Consistently make abnormal returns on the basis of information impossible."},{"startTime":1894.845,"endTime":1899.045,"body":"Doesn't say that you can never make money, you can every now and then you"},{"startTime":1899.045,"endTime":1899.885,"body":"might make money."},{"startTime":1900.225,"endTime":1902.165,"body":"The point is, you shouldn't be your day job."},{"startTime":1902.555,"endTime":1905.205,"body":"That means not gonna do it every day."},{"startTime":1905.595,"endTime":1906.365,"body":"It's like buying."},{"startTime":1907.185,"endTime":1911.163,"body":"Um, if you want tickets to Taylor Swift, for example, maybe you'll be getting it"},{"startTime":1911.163,"endTime":1913.285,"body":"now and then, but you won't get it."},{"startTime":1913.295,"endTime":1916.485,"body":"Every single concert, which it comes through town, right?"},{"startTime":1916.585,"endTime":1917.365,"body":"That's the idea."},{"startTime":1918.145,"endTime":1920.645,"body":"So those are the words, impossible and consistently."},{"startTime":1920.705,"endTime":1922.165,"body":"But also, let's look at the word abnormal."},{"startTime":1923.245,"endTime":1926.965,"body":"Abnormal just says returns are beat a benchmark like the CAPM, which we've talked about."},{"startTime":1927.545,"endTime":1931.485,"body":"So for example, if you make 10% returns in this market, are you doing well?"},{"startTime":1932.545,"endTime":1933.645,"body":"Answer is we don't know."},{"startTime":1933.785,"endTime":1936.405,"body":"The 10% is meaningless unless you have a benchmark."},{"startTime":1937.025,"endTime":1941.391,"body":"If the benchmark says the market made 5%, but you made 10 great, but maybe"},{"startTime":1941.391,"endTime":1944.885,"body":"the market made 20 and you made 10, that's not so good."},{"startTime":1945.945,"endTime":1949.685,"body":"So 10% without appropriate benchmark means nothing."},{"startTime":1949.785,"endTime":1953.635,"body":"So you have to have the benchmark correct in order to make a conjecture on"},{"startTime":1953.635,"endTime":1954.405,"body":"what you do."},{"startTime":1954.825,"endTime":1956.885,"body":"But the most important part is information."},{"startTime":1958.465,"endTime":1961.125,"body":"And I'm gonna talk about three types of information."},{"startTime":1961.675,"endTime":1963.085,"body":"They're nested within each other."},{"startTime":1963.505,"endTime":1965.805,"body":"The first one is all information and past prices."},{"startTime":1966.505,"endTime":1969.045,"body":"Second is all publicly available information."},{"startTime":1969.415,"endTime":1974.245,"body":"Third one is all public or private information, any kind of information at all."},{"startTime":1975.825,"endTime":1978.005,"body":"And there are three definitions of market efficiency."},{"startTime":1978.465,"endTime":1979.765,"body":"The first one is weak form."},{"startTime":1979.985,"endTime":1983.445,"body":"It says if you have any information at past prices, ignore it."},{"startTime":1983.445,"endTime":1984.605,"body":"It's not gonna make you any money."},{"startTime":1985.545,"endTime":1989.925,"body":"Second one says, if you have any public information about a company, forget it."},{"startTime":1989.955,"endTime":1991.205,"body":"That won't make you any money either."},{"startTime":1991.985,"endTime":1995.81,"body":"And strong form market efficiency says it doesn't matter what information you have, you never"},{"startTime":1995.81,"endTime":1997.085,"body":"make any money full stock."},{"startTime":1999.495,"endTime":2001.685,"body":"Let's look at each of this and see how we prove it."},{"startTime":2002.385,"endTime":2006.453,"body":"So week four, market efficiency is a rule which says something like, if the stock"},{"startTime":2006.453,"endTime":2009.165,"body":"price drops abruptly, I want you to buy the stock."},{"startTime":2009.195,"endTime":2010.565,"body":"It's looking cheap, let's buy it."},{"startTime":2010.565,"endTime":2013.685,"body":"It's like a sale for shoes in a supermarket."},{"startTime":2014.455,"endTime":2016.085,"body":"Stock prices are not like that."},{"startTime":2016.515,"endTime":2019.685,"body":"Just because there's a sale, it doesn't mean it's a sale, right?"},{"startTime":2020.025,"endTime":2023.325,"body":"So basically these are totally useless."},{"startTime":2024.185,"endTime":2026.565,"body":"So let's see how we can actually show this."},{"startTime":2027.555,"endTime":2031.965,"body":"This is a biological graph on body mass index and body fat."},{"startTime":2032.635,"endTime":2033.805,"body":"What does this graph say?"},{"startTime":2034.675,"endTime":2040.19,"body":"This graph says there's a positive relationship between body mass index and body fat, higher"},{"startTime":2040.19,"endTime":2042.765,"body":"body mass index, higher body fat, right?"},{"startTime":2043.465,"endTime":2046.205,"body":"That's a typical pattern which you find in biology."},{"startTime":2047.065,"endTime":2048.565,"body":"How would you translate that into finance?"},{"startTime":2049.235,"endTime":2052.165,"body":"Well, you'd have returns today, returns tomorrow."},{"startTime":2052.585,"endTime":2055.125,"body":"If you see this pattern existing, what should you say?"},{"startTime":2055.675,"endTime":2059.085,"body":"High returns today, buy because the returns tomorrow will be high."},{"startTime":2059.864,"endTime":2062.804,"body":"Low returns today sell because the returns tomorrow will be low."},{"startTime":2063.225,"endTime":2066.685,"body":"That's what you should see if you have returns today and returns tomorrow."},{"startTime":2067.385,"endTime":2070.925,"body":"And if something like this, does a pattern like this exist?"},{"startTime":2073.315,"endTime":2076.925,"body":"This is the s and p 500 returns today versus returns tomorrow."},{"startTime":2079.105,"endTime":2079.885,"body":"Can you see a pattern?"},{"startTime":2081.264,"endTime":2082.045,"body":"No way, right?"},{"startTime":2082.185,"endTime":2085.37,"body":"If you saw a pattern, the market would not be efficient because you can trade"},{"startTime":2085.37,"endTime":2086.645,"body":"on that pattern to make money."},{"startTime":2087.625,"endTime":2089.445,"body":"Now this is two dimensions."},{"startTime":2089.445,"endTime":2093.205,"body":"Return today, return tomorrow, but maybe return last week was important."},{"startTime":2093.495,"endTime":2096.165,"body":"Maybe return three days ago was important."},{"startTime":2096.625,"endTime":2098.525,"body":"How do we test more than two dimensions?"},{"startTime":2098.945,"endTime":2100.765,"body":"Answer, we use a regression."},{"startTime":2101.115,"endTime":2102.285,"body":"What does a regression look like?"},{"startTime":2102.785,"endTime":2107.445,"body":"Return is expected return, that's your benchmark plus some past return."},{"startTime":2107.865,"endTime":2111.485,"body":"So it is RT minus one is return in some previous period."},{"startTime":2111.785,"endTime":2116.214,"body":"The question is, can I use the return in a previous period to explain my"},{"startTime":2116.214,"endTime":2116.805,"body":"return tomorrow?"},{"startTime":2117.985,"endTime":2121.045,"body":"Of course, if you don't like this, you can have more complicated regressions."},{"startTime":2121.225,"endTime":2123.845,"body":"Return yesterday, return two days ago."},{"startTime":2124.305,"endTime":2128.205,"body":"You can have even more complicated regression square that term there."},{"startTime":2128.515,"endTime":2129.725,"body":"Doesn't matter what you do."},{"startTime":2130.025,"endTime":2134.196,"body":"If the market's efficient in the weak form, none of this stuff should be able"},{"startTime":2134.196,"endTime":2138.368,"body":"to explain that, which means that all you're testing for is this gamma is equal"},{"startTime":2138.368,"endTime":2138.925,"body":"to zero."},{"startTime":2140.235,"endTime":2141.365,"body":"Very straightforward test."},{"startTime":2141.625,"endTime":2143.365,"body":"And F did that in 1970."},{"startTime":2143.635,"endTime":2144.725,"body":"This is a table he did."},{"startTime":2144.725,"endTime":2147.275,"body":"He did this by hand, by the way, because there were no computers in those"},{"startTime":2147.275,"endTime":2147.445,"body":"days."},{"startTime":2147.665,"endTime":2151.765,"body":"So it's a lot of effort and that's why he deserved the Nobel Prize 30"},{"startTime":2151.765,"endTime":2153.405,"body":"years later, 40 years later, right?"},{"startTime":2153.625,"endTime":2156.165,"body":"But what you can see, most of the numbers are close to zero."},{"startTime":2156.435,"endTime":2158.925,"body":"That means past returns do not predict future returns."},{"startTime":2159.265,"endTime":2161.805,"body":"And people tried all sorts of complicated things."},{"startTime":2162.195,"endTime":2164.365,"body":"They look at things like a cup and a handle pattern."},{"startTime":2165.025,"endTime":2167.936,"body":"If you see a cup and then a handle, the price will go up later,"},{"startTime":2167.936,"endTime":2168.325,"body":"doesn't work."},{"startTime":2168.675,"endTime":2170.445,"body":"They saw things like a death cross."},{"startTime":2170.905,"endTime":2176.125,"body":"The 200 day moving average goes above the 50 day moving average doesn't work."},{"startTime":2176.655,"endTime":2179.765,"body":"Don't believe any of these signals, none of them make money."},{"startTime":2180.555,"endTime":2184.605,"body":"Okay, so now let's talk about semi strong form market efficiency."},{"startTime":2185.155,"endTime":2188.925,"body":"What this says is any information, any public information about the firm."},{"startTime":2190.305,"endTime":2193.085,"body":"So that should be there in the stock price."},{"startTime":2193.775,"endTime":2194.725,"body":"Let's take an example."},{"startTime":2195.905,"endTime":2197.725,"body":"The Titanic, right?"},{"startTime":2197.865,"endTime":2201.165,"body":"The Titanic sank on April 14th, 1912."},{"startTime":2201.695,"endTime":2202.845,"body":"Quick question for you guys."},{"startTime":2206.505,"endTime":2208.005,"body":"How much should you like the movie \u003claugh\u003e?"},{"startTime":2218.685,"endTime":2218.885,"body":"Excellent."},{"startTime":2219.185,"endTime":2223.826,"body":"So a lot of people love the movie, most people sort of 3.5, which is"},{"startTime":2223.826,"endTime":2224.445,"body":"pretty good."},{"startTime":2225.605,"endTime":2227.205,"body":"I myself hated the movie."},{"startTime":2227.685,"endTime":2228.725,"body":"Absolutely hated the movie."},{"startTime":2229.585,"endTime":2229.805,"body":"Why?"},{"startTime":2230.835,"endTime":2239.19,"body":"Anybody you knew that was gonna end well, no, because they left out the most"},{"startTime":2239.19,"endTime":2240.305,"body":"important thing."},{"startTime":2240.895,"endTime":2242.305,"body":"What was the most important thing?"},{"startTime":2243.005,"endTime":2244.265,"body":"The stock price reaction."},{"startTime":2244.535,"endTime":2246.585,"body":"They never talked about it even once."},{"startTime":2247.125,"endTime":2247.705,"body":"It was crazy."},{"startTime":2247.905,"endTime":2250.705,"body":"I was looking through the movie like, wait a minute, what happened in the markets?"},{"startTime":2251.565,"endTime":2254.625,"body":"Not once, but what happened in the market was actually very cool."},{"startTime":2255.605,"endTime":2259.425,"body":"So it sank on October, April 14th, 1912."},{"startTime":2260.005,"endTime":2264.065,"body":"No cell phones, no Twitter, no WeChat, no way of communication."},{"startTime":2265.045,"endTime":2269.804,"body":"And the the ship's owner, the International Mercantile Marine Corporation, has spent seven and a"},{"startTime":2269.804,"endTime":2272.025,"body":"half million dollars to build the Titanic."},{"startTime":2272.445,"endTime":2276.914,"body":"But it had insurance for only five and a half million within two days of"},{"startTime":2276.914,"endTime":2281.383,"body":"the ship going down in the middle of the Atlantic Ocean, two days, the stop"},{"startTime":2281.383,"endTime":2284.065,"body":"price dropped by two and a half million dollars."},{"startTime":2284.525,"endTime":2287.025,"body":"2 million is exactly the loss of insurance."},{"startTime":2287.135,"endTime":2289.385,"body":"Half a million maybe for the extra amount."},{"startTime":2289.505,"endTime":2289.745,"body":"A lot."},{"startTime":2289.745,"endTime":2292.065,"body":"Who wants to go on a ship built by the IMM, right?"},{"startTime":2292.125,"endTime":2294.065,"body":"So that's right."},{"startTime":2294.345,"endTime":2295.145,"body":"I thought that's so cool."},{"startTime":2295.685,"endTime":2297.425,"body":"But it didn't mention the movie even once."},{"startTime":2297.905,"endTime":2298.105,"body":"Pathetic."},{"startTime":2301.655,"endTime":2301.945,"body":"Okay?"},{"startTime":2302.495,"endTime":2307.621,"body":"More generally, in a semi strong form efficient market, what you're looking for is basically"},{"startTime":2307.621,"endTime":2308.305,"body":"nothing happening."},{"startTime":2308.305,"endTime":2312.185,"body":"Information is released, the price should react instantly, and then nothing should happen after that."},{"startTime":2312.765,"endTime":2317.617,"body":"If the price goes up slowly, a delayed reaction, you can make money if the"},{"startTime":2317.617,"endTime":2320.205,"body":"price overreacts and corrects, you can make money."},{"startTime":2321.145,"endTime":2324.885,"body":"The point about finances, market efficiency specially is no free lunch."},{"startTime":2325.345,"endTime":2328.397,"body":"So you should never be able to make money on the basis of any of"},{"startTime":2328.397,"endTime":2328.805,"body":"these things."},{"startTime":2329.435,"endTime":2332.125,"body":"That means the only thing which is consistent with an efficient market"},{"startTime":2336.625,"endTime":2337.045,"body":"Is this."},{"startTime":2337.825,"endTime":2338.405,"body":"That's it."},{"startTime":2338.705,"endTime":2340.805,"body":"Or of course, this, right?"},{"startTime":2340.805,"endTime":2343.845,"body":"Good news or bad news, but you should never see anything before or after."},{"startTime":2344.865,"endTime":2345.805,"body":"So let's take a look."},{"startTime":2346.745,"endTime":2351.128,"body":"So this is from a paper written by Jeff Boen, cliff Green called Market Deficiency"},{"startTime":2351.128,"endTime":2352.005,"body":"in Real Time."},{"startTime":2352.435,"endTime":2357.992,"body":"What these guys did was to look at CNBC's Midday call and it's a segment"},{"startTime":2357.992,"endTime":2359.845,"body":"hold hosted by Maria Omo."},{"startTime":2360.105,"endTime":2363.888,"body":"And in this particular case, she does this every day and she was talking about"},{"startTime":2363.888,"endTime":2364.645,"body":"a particular company."},{"startTime":2364.645,"endTime":2365.965,"body":"Every day she talks about a company."},{"startTime":2366.315,"endTime":2370.79,"body":"What you have on the left hand side will be heard talking about this company"},{"startTime":2370.79,"endTime":2371.685,"body":"called Alza, right?"},{"startTime":2371.705,"endTime":2372.525,"body":"The word alza."},{"startTime":2372.525,"endTime":2376.325,"body":"Over there on the right hand side, you're gonna see the moko."},{"startTime":2376.425,"endTime":2378.645,"body":"The white dots are the prices."},{"startTime":2379.515,"endTime":2383.165,"body":"What I'd like you to do is get ready with your stopwatches on your phone."},{"startTime":2383.575,"endTime":2386.405,"body":"She's gonna mention the word alza on the left hand side."},{"startTime":2386.965,"endTime":2391.125,"body":"I want you to tell me how fast it is before the stock price reacts."},{"startTime":2391.265,"endTime":2391.845,"body":"How many minutes?"},{"startTime":2391.945,"endTime":2392.525,"body":"How many seconds?"},{"startTime":2392.625,"endTime":2396.045,"body":"How many hours is it before the stock price reacts?"},{"startTime":2396.045,"endTime":2397.125,"body":"Okay, everybody ready?"},{"startTime":2399.475,"endTime":2400.045,"body":"Oops, sorry."},{"startTime":2402.395,"endTime":2402.685,"body":"Okay."},{"startTime":2406.345,"endTime":2411.157,"body":"And in today's midday call on Wall Street, bank of America Securities is telling clients"},{"startTime":2411.157,"endTime":2414.045,"body":"today that early sales are strong for pharmaceutical company."},{"startTime":2414.445,"endTime":2418.485,"body":"AL'S News, stop the watch to treat attention deficit hyperactivity disorder."},{"startTime":2418.785,"endTime":2421.685,"body":"The drug is called Concerta, and it launched on August 21st."},{"startTime":2422.065,"endTime":2426.246,"body":"The Bank of America analyst, Jerry Repel, has been tracking the launch on a daily"},{"startTime":2426.246,"endTime":2426.525,"body":"basis."},{"startTime":2426.905,"endTime":2432.385,"body":"He says in the midday meeting at Bank of America, that concerted prescriptions have already"},{"startTime":2432.385,"endTime":2436.405,"body":"surpassed Novartis's extended release version of Ritalin, which was quite successful."},{"startTime":2436.755,"endTime":2442.476,"body":"He's forecasting $50 million in sales this year and says that he expects peak sales"},{"startTime":2442.476,"endTime":2444.765,"body":"potential in excess of $300 million."},{"startTime":2445.265,"endTime":2446.285,"body":"How much time was that?"},{"startTime":2448.065,"endTime":2449.885,"body":"23 seconds, right?"},{"startTime":2450.225,"endTime":2452.165,"body":"That's how efficient the market is."},{"startTime":2452.465,"endTime":2455.965,"body":"You have less than a minute before the price reacts to information."},{"startTime":2456.385,"endTime":2459.565,"body":"That's why we say markets are efficient in the semi strong form."},{"startTime":2460.275,"endTime":2464.825,"body":"Another way of looking at this is by looking at precisely those guys, those guys"},{"startTime":2464.825,"endTime":2466.645,"body":"who are making so much money."},{"startTime":2466.785,"endTime":2468.765,"body":"Mutual fund managers, right?"},{"startTime":2469.405,"endTime":2472.925,"body":"Remember, mutual fund managers do not claim they have insider information."},{"startTime":2473.265,"endTime":2476.485,"body":"If they traded on insider information, they will put in jail, right?"},{"startTime":2476.785,"endTime":2477.965,"body":"So they're not allowed to do that."},{"startTime":2478.105,"endTime":2483.099,"body":"So they say we have only public information and we are gonna analyze it better"},{"startTime":2483.099,"endTime":2483.765,"body":"than anybody."},{"startTime":2484.585,"endTime":2488.765,"body":"So how do we know whether these guys actually beat the market or not?"},{"startTime":2489.475,"endTime":2491.325,"body":"Well, the answer is very straightforward."},{"startTime":2491.435,"endTime":2492.245,"body":"Same regression."},{"startTime":2492.595,"endTime":2496.365,"body":"What you have the return, you have that benchmark, whatever benchmark they're having."},{"startTime":2496.665,"endTime":2502.015,"body":"And then you want to look at whether they earn a positive alpha, a return"},{"startTime":2502.015,"endTime":2503.085,"body":"above the benchmark."},{"startTime":2504.145,"endTime":2506.605,"body":"If they earn a return above the benchmark, they're beating the market."},{"startTime":2506.625,"endTime":2507.805,"body":"The market is not efficient."},{"startTime":2508.425,"endTime":2513.245,"body":"The question is, is alpha positive or negative?"},{"startTime":2513.245,"endTime":2516.845,"body":"If it's negative, that's not a problem because they're losing money and that's totally fine."},{"startTime":2516.985,"endTime":2518.405,"body":"If it's zero, not a problem."},{"startTime":2518.405,"endTime":2520.165,"body":"They're earning it in line with a benchmark."},{"startTime":2520.825,"endTime":2523.445,"body":"But alpha positive means they're beating the benchmark."},{"startTime":2523.985,"endTime":2528.399,"body":"So the first study did, did this was 1969 by Michael Johnson, and he said,"},{"startTime":2528.399,"endTime":2530.165,"body":"do they have a positive alpha?"},{"startTime":2530.425,"endTime":2535.842,"body":"And what he found he did with 115 mutual funds, ran 115 regressions to get"},{"startTime":2535.842,"endTime":2536.565,"body":"115 alphas."},{"startTime":2536.915,"endTime":2539.525,"body":"Most alphas were on zero before expenses."},{"startTime":2539.585,"endTime":2543.845,"body":"The average alpha was negative after expenses, it was even more negative."},{"startTime":2544.425,"endTime":2547.525,"body":"He said, there is zero evidence of fund managers scale."},{"startTime":2548.195,"endTime":2549.525,"body":"This was 1969."},{"startTime":2549.535,"endTime":2553.325,"body":"Maybe stuff has changed, maybe things are getting better answer no."},{"startTime":2553.855,"endTime":2554.205,"body":"Right?"},{"startTime":2555.265,"endTime":2559.475,"body":"So if you look at even the latest evidence, if you go back to the"},{"startTime":2559.475,"endTime":2563.685,"body":"CAPM line, that was the line we talked about in part in the second lecture."},{"startTime":2564.355,"endTime":2568.562,"body":"Most of these guys are below the line, which means the earning returns, which are"},{"startTime":2568.562,"endTime":2570.245,"body":"less than predicted by that benchmark."},{"startTime":2570.515,"endTime":2574.754,"body":"They're not making money, they're earning less than you would have got had you invested"},{"startTime":2574.754,"endTime":2575.885,"body":"in the benchmark yourself."},{"startTime":2577.425,"endTime":2580.445,"body":"So maybe some fund managers do well."},{"startTime":2580.745,"endTime":2584.996,"body":"So this is another study which looked at, if you beat your benchmark by one"},{"startTime":2584.996,"endTime":2588.965,"body":"year, what's the chance you're gonna beat your benchmark by in the second year?"},{"startTime":2589.185,"endTime":2593.045,"body":"Answer 50% chance you beat your benchmark two years in a row."},{"startTime":2593.425,"endTime":2597.725,"body":"What's the chance you're going to beat your benchmark in year three, 52%."},{"startTime":2597.865,"endTime":2600.565,"body":"You beat your benchmark five years in a row, what's your chance?"},{"startTime":2600.565,"endTime":2603.565,"body":"You're going to beat your benchmark in the sixth year, 46%."},{"startTime":2604.625,"endTime":2611.248,"body":"So what kind of game gives you a 50% chance of winning and a 50%"},{"startTime":2611.248,"endTime":2613.015,"body":"chance of losing anybody?"},{"startTime":2614.655,"endTime":2615.415,"body":"I coin toss."},{"startTime":2615.835,"endTime":2620.455,"body":"So let's evaluate mutual fund performance using a different approach."},{"startTime":2621.365,"endTime":2621.655,"body":"Luck."},{"startTime":2622.445,"endTime":2625.615,"body":"Okay, let's line up every investor in the world."},{"startTime":2626.115,"endTime":2627.135,"body":"And there are lots of them, right?"},{"startTime":2627.135,"endTime":2629.895,"body":"There's six, seven and a half billion people today."},{"startTime":2630.235,"endTime":2633.366,"body":"So about one and a half billion in China, one and a half billion in"},{"startTime":2633.366,"endTime":2633.575,"body":"India."},{"startTime":2633.675,"endTime":2637.775,"body":"People around the world and take everybody who's invest in the stock market, probably about"},{"startTime":2637.775,"endTime":2639.415,"body":"a billion people line them up."},{"startTime":2639.765,"endTime":2640.295,"body":"Toss a point."},{"startTime":2641.275,"endTime":2644.931,"body":"If you get heads, you stay in the market, get tails, you leave the market,"},{"startTime":2644.931,"endTime":2645.175,"body":"everybody."},{"startTime":2645.205,"endTime":2645.495,"body":"Okay?"},{"startTime":2646.155,"endTime":2652.041,"body":"So year one, 1 billion becomes 500 million, two 50 million, one 25 million, 62"},{"startTime":2652.041,"endTime":2657.535,"body":"million, 31 million, 15,000,007 and a half million, 4 million, 2 million, 1 million."},{"startTime":2657.915,"endTime":2662.231,"body":"10 years later you've got one a million people who have tossed heads 10 times"},{"startTime":2662.231,"endTime":2663.095,"body":"in a row."},{"startTime":2663.285,"endTime":2663.855,"body":"Pure luck."},{"startTime":2665.265,"endTime":2674.805,"body":"You do this again, 1,500,000, 500,000 to 50, 62 0.5, 31.5, 15 seven and a"},{"startTime":2674.805,"endTime":2681.165,"body":"half, uh, 4, 2, 1 20 times in a row."},{"startTime":2681.165,"endTime":2683.445,"body":"You have a thousand people who have tossed heads."},{"startTime":2684.105,"endTime":2688.114,"body":"If you go to 30 years in a row, you could have one person who"},{"startTime":2688.114,"endTime":2692.123,"body":"have done that 30 years in a row, you're guaranteed to have a Warren Buffet"},{"startTime":2692.123,"endTime":2692.925,"body":"by pure luck."},{"startTime":2693.275,"endTime":2695.845,"body":"It's just the pure number of people who are participating in the market."},{"startTime":2696.305,"endTime":2698.725,"body":"You have to have somebody who just beat the market."},{"startTime":2698.725,"endTime":2701.445,"body":"There's nothing inconsistent with luck in that story."},{"startTime":2702.515,"endTime":2702.805,"body":"Okay?"},{"startTime":2703.305,"endTime":2706.485,"body":"But wait, this is just, you know, I'm telling you the story."},{"startTime":2706.705,"endTime":2709.605,"body":"I'm, you know, I, I did work in the fund industry and I got to"},{"startTime":2709.605,"endTime":2710.765,"body":"say I didn't perform very well."},{"startTime":2710.765,"endTime":2712.725,"body":"That's why I'm an economist and not a fund manager."},{"startTime":2713.205,"endTime":2718.205,"body":"\u003claugh\u003e,"},{"startTime":2715.135,"endTime":2717.005,"body":"Maybe I have no clue, right?"},{"startTime":2717.545,"endTime":2723.139,"body":"How as a professor though, how might I tell who's the smartest student in my"},{"startTime":2723.139,"endTime":2723.885,"body":"class, right?"},{"startTime":2724.665,"endTime":2728.977,"body":"One way I might do this is by looking at which student the every other"},{"startTime":2728.977,"endTime":2733.29,"body":"student is copying the answers from and says, I don't know who the smartest one"},{"startTime":2733.29,"endTime":2736.165,"body":"is, but the kids know who the smartest one is."},{"startTime":2736.985,"endTime":2742.085,"body":"So the question is, maybe other mutual fund managers can detect the super superior guys."},{"startTime":2742.145,"endTime":2746.36,"body":"I'm not, I'm an economist, I just, I don't talk to these guys, but these"},{"startTime":2746.36,"endTime":2747.765,"body":"guys hang out in bars."},{"startTime":2747.765,"endTime":2752.79,"body":"They say, oh yeah, if you want a mutual fund manager, that man's a god,"},{"startTime":2752.79,"endTime":2753.125,"body":"right?"},{"startTime":2753.825,"endTime":2757.405,"body":"So question is, do they know who these fund managers are?"},{"startTime":2758.105,"endTime":2763.486,"body":"So there's a study which is done by a brilliant professor at Cambridge that me,"},{"startTime":2763.486,"endTime":2763.845,"body":"sorry."},{"startTime":2764.785,"endTime":2768.709,"body":"But anyway, what we did was to look at every mutual fund manager in the"},{"startTime":2768.709,"endTime":2771.325,"body":"market and we saw which fund manager copied everybody else."},{"startTime":2771.425,"endTime":2775.703,"body":"So in other words, there's a gap of three quar, one quarter between your holdings"},{"startTime":2775.703,"endTime":2776.845,"body":"and the other holdings."},{"startTime":2777.185,"endTime":2779.885,"body":"And we said, how are these guys basing that information?"},{"startTime":2780.465,"endTime":2785.325,"body":"If these guys really know who the good managers are, they should the, the guys"},{"startTime":2785.325,"endTime":2786.945,"body":"who they're copying should outperform."},{"startTime":2787.575,"endTime":2788.425,"body":"They don't find that."},{"startTime":2788.815,"endTime":2792.68,"body":"What we find is the guys who are being copied are the guys who did"},{"startTime":2792.68,"endTime":2796.546,"body":"well in the past, precisely the same things we use to try to figure out"},{"startTime":2796.546,"endTime":2800.411,"body":"what a fund manager is, good or bad past information, which doesn't tell you anything"},{"startTime":2800.411,"endTime":2801.185,"body":"about future information."},{"startTime":2802.245,"endTime":2803.865,"body":"So they don't know."},{"startTime":2804.045,"endTime":2805.465,"body":"We don't know, right?"},{"startTime":2805.595,"endTime":2806.665,"body":"Let's give you a last problem."},{"startTime":2808.095,"endTime":2809.145,"body":"It's 1943."},{"startTime":2809.485,"endTime":2814.967,"body":"You are working with a statistical research group here in England, and planes are flying"},{"startTime":2814.967,"endTime":2816.795,"body":"over Germany to bomb Germany."},{"startTime":2816.795,"endTime":2818.115,"body":"Attrition rate is very high."},{"startTime":2818.345,"endTime":2819.595,"body":"Most planes do not come back."},{"startTime":2820.135,"endTime":2822.235,"body":"So your job is to put armor on the plane."},{"startTime":2822.935,"endTime":2823.755,"body":"The problem with armor."},{"startTime":2823.805,"endTime":2824.595,"body":"Armor is heavy."},{"startTime":2825.335,"endTime":2829.516,"body":"Put too much armor, the plane crashes, put too little armor, the plane gets shot"},{"startTime":2829.516,"endTime":2829.795,"body":"down."},{"startTime":2830.135,"endTime":2832.795,"body":"You have to put armor in precisely the right spots."},{"startTime":2833.615,"endTime":2837.565,"body":"So you've noticed that on the planes that come back from Germany, the engines have"},{"startTime":2837.565,"endTime":2838.355,"body":"12 bullet holes."},{"startTime":2838.815,"endTime":2841.715,"body":"The main body of the plane, the fuselage has 39 bullet holes."},{"startTime":2841.895,"endTime":2845.275,"body":"The wings have 18 bullet holes, the tail has 25 bullet holes."},{"startTime":2845.935,"endTime":2850.245,"body":"So where do you choose to put the extra armor,"},{"startTime":2855.985,"endTime":2863.213,"body":"The fuselage maximum of bullet holes, the engines minimum number of bullet holes, the wings"},{"startTime":2863.213,"endTime":2868.515,"body":"or the tail, just basing on the evidence which you have."},{"startTime":2874.435,"endTime":2874.725,"body":"Okay?"},{"startTime":2875.755,"endTime":2879.645,"body":"This, by the way, is precisely the original word survivorship bias."},{"startTime":2879.915,"endTime":2885.005,"body":"Because what you're seeing here are the planes that come back, the survivors."},{"startTime":2885.665,"endTime":2889.685,"body":"So the survivors, if you have 13 bullet holes in your engine, what happens?"},{"startTime":2890.035,"endTime":2891.045,"body":"Your plane never comes back."},{"startTime":2891.785,"endTime":2895.205,"body":"You have 30 bullet holes in your main body, the plane comes back."},{"startTime":2895.985,"endTime":2899.605,"body":"So the main body is much less vulnerable than the engines."},{"startTime":2899.605,"endTime":2903.58,"body":"The engines can bear the least number of bullet holes before you never see them"},{"startTime":2903.58,"endTime":2903.845,"body":"again."},{"startTime":2904.385,"endTime":2906.885,"body":"The sample consists of only the planes that came back."},{"startTime":2907.025,"endTime":2909.685,"body":"You never see the planes that were shot down over Germany."},{"startTime":2910.305,"endTime":2914.093,"body":"So in other words, for us, if you look at a sample of great investors"},{"startTime":2914.093,"endTime":2917.125,"body":"consistently outperformed the market and we conclude the market is not efficient."},{"startTime":2917.185,"endTime":2918.365,"body":"You're drawing the wrong conclusion."},{"startTime":2918.825,"endTime":2920.005,"body":"We are looking at the survivors."},{"startTime":2920.385,"endTime":2925.405,"body":"We don't look at the millions of people who started and never made it right?"},{"startTime":2925.745,"endTime":2929.795,"body":"So in other words, we don't need to know that Warren Buffet beat the market"},{"startTime":2929.795,"endTime":2930.605,"body":"for 30 years."},{"startTime":2930.645,"endTime":2931.965,"body":"You could have done it any number of ways."},{"startTime":2932.305,"endTime":2934.365,"body":"We need to know who the next Warren Buffett is."},{"startTime":2934.865,"endTime":2937.645,"body":"And unfortunately nobody knows the answer to that question."},{"startTime":2938.265,"endTime":2940.005,"body":"So let's go back to these great investors."},{"startTime":2940.735,"endTime":2941.845,"body":"There are two parts to this."},{"startTime":2941.985,"endTime":2945.399,"body":"So this was a graph I showed you football, and the two parts is the"},{"startTime":2945.399,"endTime":2946.765,"body":"yellow part and the pink part."},{"startTime":2947.345,"endTime":2952.628,"body":"The yellow part is their performance fees and the pink part are the gains on"},{"startTime":2952.628,"endTime":2953.685,"body":"that personal investment."},{"startTime":2954.435,"endTime":2955.365,"body":"What does that mean?"},{"startTime":2955.995,"endTime":2958.445,"body":"Well, let's take a look at, say even 2021."},{"startTime":2958.675,"endTime":2959.565,"body":"Look at Ken Griffin."},{"startTime":2960.185,"endTime":2962.445,"body":"The green stuff is a fun performance fees."},{"startTime":2962.705,"endTime":2964.965,"body":"The pink stuff is gains on personal investment."},{"startTime":2965.555,"endTime":2969.717,"body":"What that means is every year when they say these guys made billions of dollars,"},{"startTime":2969.717,"endTime":2973.325,"body":"the two parts it, one is the money he made running his fund."},{"startTime":2973.745,"endTime":2977.776,"body":"The other is the money he made on the previous billions of dollars he already"},{"startTime":2977.776,"endTime":2978.045,"body":"had."},{"startTime":2978.945,"endTime":2982.076,"body":"And if even if you earn 1% on a billion dollars, that's a ton of"},{"startTime":2982.076,"endTime":2982.285,"body":"money."},{"startTime":2983.825,"endTime":2987.565,"body":"So moral of the story is how do you get to be a billion?"},{"startTime":2987.905,"endTime":2991.073,"body":"How do we get to be a, you know, a billionaire Start with a billion"},{"startTime":2991.073,"endTime":2991.285,"body":"dollars."},{"startTime":2992.945,"endTime":2994.365,"body":"That's why they say the first billion."},{"startTime":2994.465,"endTime":2996.085,"body":"That's always the hardest \u003claugh\u003e."},{"startTime":2998.155,"endTime":3002.205,"body":"Okay, so the last part is strong form market efficiency."},{"startTime":3002.395,"endTime":3007.616,"body":"What that basically says any kind of information public or private is in the market"},{"startTime":3007.616,"endTime":3007.965,"body":"price."},{"startTime":3008.865,"endTime":3009.765,"body":"How is that possible?"},{"startTime":3010.025,"endTime":3012.485,"body":"If private information, nobody knows this."},{"startTime":3013.055,"endTime":3013.965,"body":"Let's take an example."},{"startTime":3014.735,"endTime":3017.565,"body":"Let's say we are in Cambridge, right?"},{"startTime":3017.825,"endTime":3020.956,"body":"And I would need a couple of people, uh, would you like to be a"},{"startTime":3020.956,"endTime":3021.165,"body":"volunteer?"},{"startTime":3021.435,"endTime":3021.725,"body":"Sure."},{"startTime":3022.035,"endTime":3024.845,"body":"Okay, so you are the CEO of a company, okay?"},{"startTime":3025.225,"endTime":3029.045,"body":"And I have here somebody who wants to be the CFO of the same company."},{"startTime":3029.385,"endTime":3033.027,"body":"Now I have to point out, Hugh Purr is a friend of mine and he's"},{"startTime":3033.027,"endTime":3034.485,"body":"also a black belt in Aikido."},{"startTime":3034.675,"endTime":3035.765,"body":"He's a big, huge guy."},{"startTime":3035.765,"endTime":3037.485,"body":"He's terrifying on the dojo floor."},{"startTime":3038.145,"endTime":3040.485,"body":"So he's your CFO, okay?"},{"startTime":3040.865,"endTime":3044.485,"body":"Anyway, you're both going for a punting on trip on the cam."},{"startTime":3044.625,"endTime":3046.245,"body":"And Hugh confesses to you."},{"startTime":3046.425,"endTime":3048.205,"body":"He says, look, the company is losing money."},{"startTime":3048.545,"endTime":3051.897,"body":"And by sheer coincidence, I've taken the last million pounds of the firm's money and"},{"startTime":3051.897,"endTime":3053.685,"body":"I have it in a bag right here."},{"startTime":3053.985,"endTime":3055.405,"body":"I'm telling you this because you're a friend."},{"startTime":3056.045,"endTime":3058.445,"body":"I am going to the punt arrives on the other side."},{"startTime":3058.445,"endTime":3059.565,"body":"I've got a taxi waiting for me."},{"startTime":3059.665,"endTime":3061.365,"body":"The taxi will take me to the airport."},{"startTime":3061.665,"endTime":3062.645,"body":"I'm going to South America."},{"startTime":3062.865,"endTime":3064.365,"body":"You will never see me again."},{"startTime":3065.505,"endTime":3067.445,"body":"Now, this is private information."},{"startTime":3067.455,"endTime":3069.085,"body":"She's the only person who's heard this."},{"startTime":3069.275,"endTime":3070.765,"body":"It's in a punt in the middle of the river."},{"startTime":3070.865,"endTime":3073.125,"body":"Can, no one else has ever heard this information."},{"startTime":3073.705,"endTime":3075.005,"body":"How does it get into the stock price?"},{"startTime":3078.555,"endTime":3081.496,"body":"Like if your market is efficient in the strong form, it should be there in"},{"startTime":3081.496,"endTime":3082.085,"body":"the stock price."},{"startTime":3082.625,"endTime":3087.245,"body":"But how he's gone off to South America, she can't, he's a big guy."},{"startTime":3087.465,"endTime":3088.685,"body":"She can't hopefully."},{"startTime":3088.745,"endTime":3090.205,"body":"Are you a black belt at something?"},{"startTime":3090.745,"endTime":3090.965,"body":"No."},{"startTime":3090.995,"endTime":3093.965,"body":"Okay, so you can't hold him down and keep him there until the police arrive."},{"startTime":3094.145,"endTime":3096.125,"body":"So he's gone with the money, right?"},{"startTime":3096.545,"endTime":3098.285,"body":"He, no one's going to hear from him."},{"startTime":3098.665,"endTime":3100.965,"body":"How does your information get in the stock price?"},{"startTime":3103.105,"endTime":3107.1,"body":"The answer is, if insider trading is not illegal at that time, all you have"},{"startTime":3107.1,"endTime":3108.965,"body":"to do is she calls a broker."},{"startTime":3109.185,"endTime":3111.285,"body":"She says, sell all my shares right now."},{"startTime":3112.065,"endTime":3113.245,"body":"But what does a broker say?"},{"startTime":3113.345,"endTime":3116.965,"body":"Broker said, wait, she's the CEO, the CEO's desperate to unload her shares."},{"startTime":3117.105,"endTime":3118.245,"body":"Is this good news or bad news?"},{"startTime":3119.055,"endTime":3120.685,"body":"Definitely bad news, right?"},{"startTime":3120.905,"endTime":3125.086,"body":"So even before the broker executes their order, what's the first thing the broker's gonna"},{"startTime":3125.086,"endTime":3125.365,"body":"do?"},{"startTime":3125.875,"endTime":3127.085,"body":"Sell all his own shares."},{"startTime":3127.315,"endTime":3129.205,"body":"Call all his friends to tell their shares."},{"startTime":3129.745,"endTime":3131.445,"body":"It doesn't matter what the information is."},{"startTime":3131.945,"endTime":3137.063,"body":"The moment you recognize an insider is buying or selling, that's information for the market,"},{"startTime":3137.063,"endTime":3137.405,"body":"right?"},{"startTime":3137.545,"endTime":3140.325,"body":"That's why the market might be efficient in the strong form."},{"startTime":3140.355,"endTime":3145.565,"body":"Unfortunately, most insiders are try not to be dumb."},{"startTime":3145.565,"endTime":3149.005,"body":"They sell their shares through, you know, friends, family, whatever."},{"startTime":3149.345,"endTime":3154.431,"body":"So it's difficult to find, you know, um, difficult to find cases when it's obvious"},{"startTime":3154.431,"endTime":3156.805,"body":"that this is an insider who's trading."},{"startTime":3157.305,"endTime":3161.325,"body":"And that's why insiders do make money, which is why it's also illegal, right?"},{"startTime":3161.325,"endTime":3165.203,"body":"So that's the one thing which you cannot stop, but semi strong form market efficiency,"},{"startTime":3165.203,"endTime":3168.565,"body":"you can pretty much say yes, the market's efficient, weak form market efficiency."},{"startTime":3168.565,"endTime":3172.659,"body":"You can say yes, the market's efficient, but strong form insider information will still make"},{"startTime":3172.659,"endTime":3173.205,"body":"you money."},{"startTime":3173.545,"endTime":3176.285,"body":"And that's why you should not do it because you'd get put in jail."},{"startTime":3177.675,"endTime":3177.965,"body":"Okay?"},{"startTime":3179.025,"endTime":3180.245,"body":"So big takeaway."},{"startTime":3180.585,"endTime":3183.365,"body":"For a long time finance, academics thought the market was efficient."},{"startTime":3184.115,"endTime":3189.049,"body":"Competition between traders would drive prices to fundamental values and irrational traders will be completely"},{"startTime":3189.049,"endTime":3190.365,"body":"driven outta the market."},{"startTime":3191.475,"endTime":3195.125,"body":"Unfortunately, many people are realizing now that this is not true."},{"startTime":3195.155,"endTime":3200.885,"body":"Investors make systematic mistakes and they affect prices in ways that are difficult to predict."},{"startTime":3201.635,"endTime":3205.67,"body":"That will be the subject of my next year's series of lectures where I talk"},{"startTime":3205.67,"endTime":3207.285,"body":"about the human side of finance."},{"startTime":3207.665,"endTime":3209.405,"body":"How do people actually behave?"},{"startTime":3210.025,"endTime":3213.96,"body":"All I've talked about in these series, series is about what the theory says we"},{"startTime":3213.96,"endTime":3214.485,"body":"should do."},{"startTime":3214.915,"endTime":3217.725,"body":"Next year's series will be all about what do we actually do?"},{"startTime":3217.905,"endTime":3219.805,"body":"How does it, how does the market actually work?"},{"startTime":3220.225,"endTime":3221.325,"body":"So what have we done this year?"},{"startTime":3222.265,"endTime":3223.645,"body":"Six basic ideas in finance."},{"startTime":3224.085,"endTime":3230.525,"body":"NPV portfolio, theory, CAPM, capital structure, option pricing, asymetic information, and market efficiency."},{"startTime":3230.535,"endTime":3233.125,"body":"Today, all the ideas fit together."},{"startTime":3233.425,"endTime":3236.565,"body":"If any of these ideas don't work, nothing works."},{"startTime":3236.935,"endTime":3237.285,"body":"Right?"},{"startTime":3237.505,"endTime":3238.325,"body":"All have to work."},{"startTime":3239.225,"endTime":3240.925,"body":"That's why finance is so elegant."},{"startTime":3241.095,"endTime":3242.605,"body":"Everything fits together."},{"startTime":3245.825,"endTime":3249.605,"body":"But at its core, finance actually only has one big idea."},{"startTime":3250.905,"endTime":3251.525,"body":"No free lunch."},{"startTime":3251.865,"endTime":3253.485,"body":"Nobody gives you something for free."},{"startTime":3254.185,"endTime":3260.285,"body":"If you take that away, you will be a wealthier, more cynical human being."},{"startTime":3260.325,"endTime":3261.165,"body":"B \u003claugh\u003e."},{"startTime":3261.395,"endTime":3262.765,"body":"Okay, thank you."}]}