Stock picker Ken Farsalas at Oberweis Asset Management is proving that the best way to trounce index funds is to fill your portfolio up with little known, earnings-beating companies. Eugene Fama, University of Chicago economist and father of the efficient market hypothesis, has long been a thorn in the side of active stock managers. His Nobel Prize-winning research dating back to 1970 argues that stock prices reflect all available information and are therefore fairly priced.
In other words, trying to beat the market is futile over the long term. Journal of Financial Economics, he addressed the phenomenon that stock prices continue to move up or down in the direction of an earnings surprise for as much as a year, describing it as the “granddaddy of under-reaction events.” Fama dismissed this challenge to his efficient market hypothesis attributing it to pure chance, but a quarter-century later, the effect known as “post-earnings announcement drift” (PEAD) stubbornly persists
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