There’s a fair amount of evidence and for the Efficient Market Hypothesis, which states that it’s impossible to achieve better-than-market returns (when adjusted for risk) on a regular, repeatable basis.

However, if there’s one person who can disprove the EMH, Warren Buffett is that person. Not only has he very consistently done better than the market for decades. Not only does his existence create some evidence against the EMH, but he can cite other real-world examples too:

We bid on this particular issue - this happens to be Citizens Insurance, which is a creature of the state of Florida. It was set up to take care of hurricane insurance, and it’s backed by premium taxes, and if they have a big hurricane and the fund becomes inadequate, they raise the premium taxes. There’s nothing wrong with the credit. So we bid on three different Citizens securities that day. We got one bid at an 11.33% interest rate. One that we didn’t buy went for 9.87%, and one went for 6.0%. It’s the same bond, the same time, the same dealer. And a big issue. This is not some little anomaly, as they like to say in academic circles every time they find something that disagrees with their theory.

Buffet has also said:

Observing correctly that the market was frequently efficient, they went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day.

Unfortunately, frequently efficient is enough to force most of us to give up on dreams of making it big in the stock market. It’s been shown time and time again that most investors cannot beat the market (after adjusting for risk) on a regular basis. (Keep in mind that this includes most active mutual fund managers too).

Buffett knows this, and gives some advice for us unwashed masses:

Well, if they’re not going to be an active investor - and very few should try to do that - then they should just stay with index funds. Any low-cost index fund. And they should buy it over time. They’re not going to be able to pick the right price and the right time. What they want to do is avoid the wrong price and wrong stock. You just make sure you own a piece of American business, and you don’t buy all at one time.

He also said:

…for most people, the bulk of their income is going to come from earning power in their chosen profession. Therefore, from the standpoint of building wealth, free time is better spent sharpening one’s professional skills rather than studying investing.

Personally, I’ve seen a lot of people at a lot of different jobs spend their time chit-chatting about stocks and investing rather than working or finding ways to enhance the business they’re already in. And consider this: how many people do you know that have made the bulk of their fortunes investing their own money in companies that they didn’t also have a hand in managing? Keep in mind that most professional financial investors make their money from commissions, not investments, and most capitalists, entrepreneurs, and executives make their money from growing their own companies. There’s only a handful of Buffetts that make it big in stocks.

(Inspired by this Lifehacker post.)