I’ve noticed that the business world has become prone to using definitions and phrases that are illogical, or just borderline ridiculous. I first became aware of this phenomenon in business school while listening to Micheal Porter, Harvard’s business theory poster child, give a speech to about 500 prominent CEO’s where he said that we can’t just be ok with excellence. Well if you can’t be ok with excellence then what the hell can you be ok with? During this time I also heard a lot of businessmen use the phrase “semi-efficient” to describe the market.
For all of you non-business people the efficient market theory was first introduced in 1960 by a professor at Chicago Business School. The theory basically states that because the market is informationally efficient, which means that all public information is immediately disseminated by the market and built into stock prices; people can’t consistently achieve returns higher than the average market returns.
The problem with this theory is that we know for a fact that people can beat the market with information only available to the public, year in year out. Warren Buffet is a good example of such an investor. The theory has been discredited by numerous studies. So instead of just jettisoning the theory, the business world decided to just call the market semi-efficient, meaning at least to most people, that information is disseminated quickly and while the market is not unbeatable, it is very difficult to beat.
By redefining and changing the theory we have, at a minimum, made the name of the theory illogical. If efficient is defined as: performing or functioning in the best possible manner with the least waste of time and effort; having and using requisite knowledge, skill, and industry; competent; capable, then you really can't have something semi performing in the best possible manner with the least waste now can you? Think of it this way, you can’t have semi-excellent, or sort of great(that would then be bad, mediocre, or not good). Just because other people use the phrase doesn’t make it logical or correct.... I can think of a million cases of ebonics. The word semi negates the word efficient so they can’t be put together, well at least not logically.
Now some will surely argue that even though in the technical sense of the word semi-efficient means nothing, there is a colloquial sense of efficient which means really damn hard to beat. Thus one could say something like "the equities market is way too efficient for the common man to beat".
I would go further though and say it is not just simply a problem with the language, but with the concept. I say that because the efficient market theory is pretty concrete in that it states the market can't be beaten so just as that word doesn't make sense except in the colloquial sense I would say the concept of a semi-efficient market does not make sense either. Either it is beatable or not. If not then the whole theory is wrong, in which case you can not have a semi-accurate theory. Basically all your saying is the market is inefficient, but still hard for the average guy to beat. Since everyone already knows that the market is hard for the average guy to beat(not so different than online poker) it makes the semi-efficient market theory a complete joke. That's because if in the inefficient market everyone already knows that the market is tough for the average guy to beat then semi-efficient market and inefficient market are the same thing. Perhaps you may want to use the language of semi-efficient to symbolically express that it is harder to beat, but that is just using our language improperly by applying an adjective that makes the word technically incorrect. Not that it hasn't been done before. It's just that one is correct according to our language and the other isn't.
