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.

A strict version of the hypothesis argues that no amount of research can reliably beat a market index over time, since any real edge gets traded away almost as soon as it appears. A weaker, more common version doesn't go that far. It treats market efficiency as a strong default rather than an absolute law, the market is usually right, and disagreeing with it needs a specific, checkable reason rather than a feeling that a stock deserves a higher or lower price.

This is why market efficiency matters as a starting assumption rather than a belief to hold blindly. Assuming markets are efficient forces an investor to name a specific, checkable reason a price might be wrong in a particular case, instead of assuming they simply know better. 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.