Or deficiency as I would like to call it.

Let’s first look at what market efficiency is.

The degree to which stock prices reflect all available, relevant information.

Investopedia.com

You can substitute stock prices with any investments; properties, mutual funds, paintings etc.

Let’s say for a house, the face value is the price of the land title, the bricks that built it, the glass panes, metals used… Everything total up together, and that is where you get the face value of the house on that piece of land. In a 100% totally efficient market, there’s no market valuation, that means you cannot sell anything at a profit. You sell it as it is. No mark-ups, no margins. Yeah…an area where all salesmen/saleswomen will avoid.

And vice versa, having market inefficiency is where sales people thrive. They know the loopholes, and the way to go around things. And profit is made from within the inefficiencies.

So, you can say that imperfections drives the economy, but of course, not without certain side-effects. A monopoly is a sort of inefficiency, since it does not allow for fair competitions. Speculations, whereby the price is being affected mainly by sentiments is also a from inefficiency. It doesn’t reflect the true value of a particular investment, but just because a few people decides that the price should go up (or down), the price is then reflected.

The more inefficient the market, the higher the margin. You can try asking the bird nest sellers in Miri. The market is so inefficient that if you bring one of the bird nest you bought from Kedai Ah Seng to another bird nest dealer in Kedai Ah Beng, he cannot give you the “market value” of the bird nest you have. Hence, it allowed these bird nest dealer to quote whatever price they want (as long as they make a good profit out of it) and they have no worries about you comparing the prices, since all the bird nest sold are so different in sizes/quality/type/brands. And hence, consumers lose any bargaining chips, since there’s no market value to refer to.

As a conclusion, the market has to be inefficient for us to be able to make profit. So instead of complaining about how certain policies is disadvantageous or how certain Government Acts are dampening the economy, we must realize these one-sided events usually trips the balance of the marketplace, causing an inefficiency in it.

So embrace inefficiencies, and you not just save your breathe complaining about it, you can also thrive in any market conditions.

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