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Market Inefficiency

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Market inefficiency is a condition that occurs when current prices don't reflect the available information regarding securities. The anomaly known as market inefficiency can occur if an individual does not properly analyze the existing public information, or if an individual somehow obtains certain information before others do. For example, if an investor mistakenly prices the value of a distressed company's future earnings too low, market inefficiency may occur; put differently, investors may interpret that company's stocks to be worse investments than they actually are, resulting in market inefficiency. Many investors attempt to use a market inefficiency to their advantage. Famed investor Warren Buffet claims to have accumulated his fortune as a result of market inefficiency. In regards to market inefficiency, Warren Buffet has stated, "I'd be a bum on the street with a tin cup if the markets were efficient."



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