Is market efficient?

Warren Buffett said so many times that market is not efficient and the business school is providing misleading trainings in general.

On the surface, the market seems to be efficient since it is pretty hard to beat market for average people. But on the other hand, for traders and value investors, there are many people who can consistently beat the market for many years in a roll.

In my view, it is not a question of whether it is efficient or not. Instead, it is a question how efficient it is. Or in other words, how hard it is to beat the market consistently.

I believe for any normal person who study on the right track for 2-3 years and has enough patience, it is quite possible for him/her to beat the market consistently. In another word, market is far from the efficient level we were told in the textbooks.

Market is not so efficient for four reasons:
1. Human psychology. Many researches in Behavioral Finance shows that we as human being have behavior bias. We tend to neglect the bad part when we are focusing on profit potential (greedy), and neglect the good part when we are focusing on loss potential (fear). Also there is a tendency to be impatient (hope to get decent return in short term). Those who are patient and can control their emotions certainly have a big advantage.
The fact we have so many bubbles in history is not coincidence. It is a pattern keep repeating itself. The existence of these extreme conditions invalidate the assumptions that investment community always react rationally to public available information. It is very clear that experienced value investors were able to identify these bubbles and actually had a consensus among themselves. For example, many value investors sold all their positions and stand in sideline in year 1999. Despite repeated speeches from Buffett that the future return is not going to be good, nobody actually listen to him any more at that time.

2. Different Goal and time horizon. There are many investors competing on the stock market. But no all of them have the same time horizon. Most mutual fund managers have to explain their short term performance. For this reason, they may have trouble to pursue an opportunity that only gives good returns in long term, but will do poorly in short term, even though they do believe it is a good buy. In this case, the money manager's goal is to keep his job and keep getting the management fees, not for the best long term performance. Also, most people tend to be impatient and not tolerable to short term price fluctuations.

3. Different skills. Investors have different skill sets. Some are better on technical analysis, others are better on fundamental. Some only focus on current financial statements, others focus on people factor and long term growth as well. Those people who are on the right track and practiced their skills for many years certainly have an advantage.

4. If most people believe the market is efficient and don't exploit the weakness of the market, then the market will become more inefficient again.