Efficient market hypothesis

The efficient market hypothesis is the idea that a stock's price already reflects all publicly available information about a company, so it is very hard to consistently find stocks that are mispriced using information everyone else can also see. If a piece of news or a detail in a filing is public, thousands of other investors have already read it and traded on it, and the price already accounts for it.

The hypothesis is usually split into three forms. The weak form says prices already reflect all past price and trading data, so studying charts alone can't reliably beat the market. The semi-strong form, the version described above, says prices also reflect all public information, so research based on filings and news can't give a consistent edge either. The strong form goes furthest, saying prices reflect all information, including private information known only to insiders.

In practice, market efficiency works best as a strong default rather than an absolute law or a belief to hold blindly. The market is usually right, so disagreeing with it needs a specific, checkable reason a price might be wrong in a particular case, rather than a feeling that a stock deserves a higher or lower price. Assuming markets are never efficient is just as unhelpful, since it treats every price as noise and removes any reason to do careful analysis in the first place.