Of course you can beat the market.
At least, that’s what the finance industry wants you to believe. For years, we’ve been told that financial markets are perfectly efficient machines, rationally pricing in every piece of news the second it hits the wire. But what if that’s completely wrong? What if the market is actually just as emotional, irrational, and biased as we are?
On the latest episode of the Earn & Invest podcast, I sat down with Alex Edmans, a finance professor at London Business School and author of The Madness of Markets: Why Smart Investors Make Crazy Decisions and How to Exploit Them.
I went in expecting a standard academic defense of the efficient market hypothesis. Instead, Alex completely dismantled it.
Here are a few of the fascinating—and frankly, wild—things we discussed on the show:
1. The Market is Deeply Emotional
If markets were perfectly rational, stock prices would only move based on fundamentals. But Alex’s research shows something entirely different. For instance, when a country gets knocked out of the World Cup, its national stock market systematically declines the very next day. Why? Because investors are in a bad mood.
Similarly, it turns out the market dramatically underreacts to positive fundamentals. When a company is named to Fortune’s “100 Best Companies to Work For,” it takes four to five years for the stock price to fully reflect the financial value of having satisfied employees.
2. Corporate “Poker Tells”
This was my favorite part of the interview. Just like a poker player with a bad hand, nervous executives give off behavioral tells.
Alex explained how some CEOs deliberately schedule their Annual General Meetings in incredibly inconvenient locations—think McAllen, Texas, or Lahore, Pakistan—specifically to avoid aggressive questions from shareholders. The data backs it up: a strategy of shorting or selling companies after they announce these abnormal meeting locations generated 6% to 12% excess returns over six months.
3. The Dunning-Kruger Trap
It is tempting to hear about these inefficiencies and think, “Great, I’m going to go pick stocks and make a fortune.”
But Alex warns against the Dunning-Kruger effect. Smart professionals often fall into the trap of overconfidence. Unless you have deep, day-to-day access to corporate supply chains and executive management, you don’t have an informational edge. You just have a narrative. And buying a great company with a great story (like AI or electric vehicles) at an inflated price still makes for a terrible investment.
4. How to Actually Exploit the Madness
During the episode, Alex breaks down five specific levels of how investors can apply this knowledge, depending on their actual skill and time commitment:
Level 1 (Index Funds): Acknowledge you lack a stock-picking edge, ignore the crypto/NFT hype, and buy the whole market.
Level 2 (Equity Premium): Exploit the historical outperformance of stocks over bonds by simply holding a higher equity allocation.
Level 3 (Factor ETFs): Use low-cost rules-based funds (like momentum or dividend ETFs) to capture behavioral trends without having to pick individual winners.
Level 4 (Active Management): Entrust your capital to highly skilled, research-driven managers.
Level 5 (Stock Picking): Doing the heavy lifting yourself—a path Alex admits he rarely takes himself because of the immense time required.
My Takeaway: Beta is Good Enough
Talking to Alex was incredibly eye-opening, but as I reflected on the episode, I came back to a core philosophy we talk about all the time on Earn & Invest.
Just because market inefficiencies exist, doesn’t mean you have to be the one to exploit them.
For the everyday investor, your primary edge isn’t inside information—it’s your time horizon. Professional fund managers get forced to sell off great long-term investments because their clients panic and withdraw cash during downturns. As an individual investing your own permanent capital, you can simply ride out the storm.
We build wealth through concentration—pouring our time and energy into our W-2 jobs, our careers, or building a business. But we safeguard that wealth through diversification—putting our money into broad, boring index funds.
Unless investing is your primary profession, spending hours trying to squeeze out a few extra percentage points of “alpha” usually just adds unnecessary risk and stress to your life. For the vast majority of us, market beta is more than good enough.
Want to hear the full conversation about corporate poker tells and market madness?
Let me know what you think in the comments—are you trying to beat the market, or are you happy riding the wave?