1. 1-Sentence-Summary:
1.1. Adaptive Markets gives you a better understanding of how the movement of money in the world works by outlining the characteristics of the market, some of which are more like living creatures than you might think.
2. Favorite quote from the author:
2.1. "The wisdom of the crowds is sometimes overwhelmed by the madness of the mobs." - Andrew W Lo
3. 3 lessons:
3.1. The Efficient Market Hypothesis says that a company’s stock price is an indication of its health.
3.1.1. The asset prices, like those of stocks or bonds, will always accurately tell the story of a company’s overall health, profitability, and value.
3.1.1.1. It’s not perfect, but experts agree that the Efficient Market Hypothesis is the best.
3.1.2. An example:
3.1.3. This hypothesis also accounts for the irrational emotional behavior of people.
3.1.3.1. It does this with the idea that everything in the market evolves and happens for a reason.
3.1.3.2. An example:
3.1.4. Just like natural selection, competition and innovation make for an ever-changing and improving market.
3.2. Survival of the richest is the force by which businesses make improvements that help make the world a better place.
3.2.1. Investors, regulators, hedge funds, and companies compete to stay afloat.
3.2.2. Only the optimal qualities lead to wealth, so those traits will begin to stand out in the evolution of the market.
3.2.2.1. An example:
3.2.3. Superior techniques for investing, reign supreme while the weaker ones die out.
3.2.3.1. The market is a constant ebb and flow of good ideas thriving and bad ones fading away.
3.3. If you want to invest in the stock market but feel lost, just use these theories to guide you.
3.3.1. Because we know that the Efficient Market Hypothesis works well, we can conclude that stock prices reflect a company’s true value.
3.3.2. Another word for this is equilibrium.
3.3.2.1. While prices move up and down occasionally, overall the market wants to be at this state of stability.
3.3.3. It’s this fact that lets us trust in long-term investments as a way to make good money from the stock market.
3.3.4. Invest wisely.
3.3.4.1. But be careful for some stocks that stagnate.
3.3.4.2. An example:
3.3.5. If you watch wisely and get good advice from advisers, you can know when to get out and when to stay in.