At JL Warren Capital, we believe that the equity market is essentially inefficient – an idea that squarely contradicts one of the great canons of modern finance theory, Eugene Fama’s efficient market hypothesis. This theory asserts that financial asset prices fully reflect all available information at all times. Therefore, no one can systematically outperform the market by using an informational advantage – one can only beat the market through luck. The spectacular and repeated failure of this hypothesis has barely dented its popularity, even following the devastating financial crisis that erupted at the end of 2007.

We believe that market inefficiencies can exist when any of the following forms of knowledge are lacking: data, analysis, or creative intelligence. Information consists of patterns in data; analysis comes from testing the patterns in the light of hypotheses; and creative intelligence arises when one leaps from analysis to new, differentiated insights. It is precisely these kinds of intelligence that help successful investors form investment decisions.