Have you ever seen that game where the goal is to guess the number of jelly beans in a jar? When you look at the range of guesses, you’ll find a 
huge disparity – some people’s guesses are surprisingly low while others’ are much too high. Yet, something amazing happens when you take the average of everyone’s guesses: The average guess ends up being right on.
This effect is referred to as “The Wisdom of the Crowds.” The term, coined in the book by James Surowiecki, proposes that the collective intelligence of a crowd can exceed that of any of its individuals.
The wisdom of the crowds is very relevant to investing. Every day, millions of professional (and amateur) investors make their judgement about the proper price for a given stock. And despite there being a wide range of conclusions about what a stock is worth, that stock trades at what is essentially the crowd’s consensus about its value.
And that consensus tends to be remarkably accurate. One of the reasons that’s the case is because there are so many investors with access to the same global data about the stock, at the same time, all running thoughtful financial analysis and incorporating all known information about the stock and the economy.
This phenomenon of stock prices being fairly (and intelligently) priced is called The Efficient Market Hypothesis (and it won its creator Eugene Fama the Nobel Prize). It essentially suggests that stocks are always priced correctly because millions of people have crunched all known data to determine a fair price.
Over the years, we’ve often heard: “I want to buy some Apple stock – I hear they are coming out with a new iPhone.” The instinct is right in believing Apple sales and profits may increase but the reality is that millions of stock analysts already know that Apple is coming out with a new iPhone and have already factored that into the current price of Apple.
There’s a saying: “There aren’t a lot of $100 bills lying around Wall Street.” It means that you don’t just stumble upon something valuable others haven’t already spotted in the stock market because there are too many people already “scouring the ground for $100 bills.”
What does this mean for you and us as investors? That we need not devote time or effort to trying to find underpriced stocks to buy or overpriced stocks to sell. We can just assume that virtually all of the time, stock prices are fair. Our mission is to invest across global stock markets and earn the rewards that are highly likely to be delivered over time. We do this in a thoughtful, structured, disciplined and evidence-based way while paying close attention to costs and taxes as that’s what leads to healthy long-term returns.
