Blog 1 Essay

Submitted By roydilekoglu
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The two articles that were posted for us to read brought up very interesting points as to the topic of hedge funds and market efficiency. Within these two articles we are able to see how successful hedge funds can be. Although the stock market is supposed to fluctuate randomly, these cases showed companies and people being able to gain serious financial rewards from their knowledge on certain areas of the market. Thus, bringing up the debate as to whether or not hedge funds contribute to market efficiency. I believe that hedge funds/mutual funds are an important part of the stock market and that they are an integral contributor to market efficiency. George Gibson wrote that, “when shares become publicly known in an open market, the value…may be regarded as the judgment of the best intelligence concerning them.” David Abrams, for example, is extremely intelligent at investing in beaten-down companies and then eagerly reaping the rewards of large stock increases upon corporate changes. In my opinion, there will be outliers in any market. Eventually there will be people, like David Abrams, who can decrease their risk in investments because they have been studying one particular area for so long. It looks like if there are such people like David Abrams, who are posting average annual returns of 15% on multibillion dollar portfolios, then the market must not be efficient; that there may indeed be some way to beat it or some form of receiving guaranteed returns. However, hedge fund managers, like David Abrams himself, are doing nothing but using their own information to make investment decisions in areas where they know how the market works. Their strategy of buying beaten-down companies and then hoping for some upward changes in order to bring stock value up does not count as market inefficiency in my eyes. David Abrams understands how these companies offer quick returns as minor changes boost stabilization. From reading the articles, it almost looks easy to make a lot of money in the stock market. Unfortunately, that is not the case; hedge fund managers like David Abrams and William Ackman are way more intelligent at understanding certain information about these investments than any average person. For that reason, I believe that the stock market is efficient, even with hedge funds. These large financial gains are not random. They
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