Written by Michael Bigger. Follow me on Twitter.
This was the poignant question asked of Umair Haque by one of his Twitter followers. Haque answered this question in a thought-provoking blog post: The Efficient Community Hypothesis (ECH).
Haque starts his analysis with the Efficient Market Hypothesis: "the prices of securities reflect all known information that impact their values. The hypothesis does not claim that the market price is always right."
Then he goes on to propose his own hypothesis. He states, "Call it the Efficient Community Hypothesis. It says: where efficient markets incorporate 'all known information,' efficient communities incorporate 'the best known information.'" Brilliant!
Think about it this way: an efficient community is an effective community of ants that extracts the best-known information from all available information.
Haque continues, "Organizations that can seed efficient communities stand to gain a disruptive information advantage" More brilliance!
Haque concludes his post with the following statement: "In markets alone, assets are never priced correctly, and fund managers earn mega-bucks. But in a market embedded in a community? Well, the tables might turn: Maybe 658,000 fund managers are worth 25 teachers."
I don't think the tables will turn. Fund managers are already seeding more efficient financial communities.
I can think of many ways to incorporate Haque's ECH into my trading algorithm. What about you?