What Is Efficient Market Theory?

Many people try to “beat” the stock market by second-guessing the prices of stocks. They want to not only make a profitable return on their investment, but to outperform the stock market itself. Lots of people look for the latest “hot stock.”

But we know that the best strategy for an effective long-term investment is using institutional passive asset class funds, and finding the discipline to stick with this strategy.

The reason? It’s all about efficient market theory.

Efficient Market Theory

Eugene Fama, Professor of Economics at the University of Chicago, formulated the efficient market theory in 1970. The theory says that at any given time, the prices of any stock or market will fully reflect all of the available information on that particular stock or market.

Since no one has access to information not already available to everyone else through the media, then no one has any advantage on predicting price. It is impossible to pick a “hot stock” or to “beat” the market.

What This Means for Your Investments

Our investment strategy is to never try to “beat” the market, by gambling on the price of a particular stock.

Instead, we focus on using high-quality, institutional funds, created by global leaders in the investment industry, and supported by years of rigorous academic research to achieve market rate returns.

A Disciplined Strategy

At Cornerstone, we know the best way to make you successful in your investments is to find a long-term investment strategy and stick with it. We meet with your regularly to review your plan, and give you the discipline to stick with it.

Only by staying focused—and not by buying that “hot” stock—will you be able to achieve your long-term investment goals.


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