F6 and Dishfan:
Excuse me for jumping into your discussion but I also have given this issue some thought over the years. One part of the EMT that you have not discussed is Time. The market is efficient given enough time. That is why long term studies of the market versus funds shows the funds as inferior. Funds all suffer some restrictions that the whole market does not (see below) and given enough time the market will correct inefficiencies. BUT, in the short term individuals can take profitable advantage of those inefficiencies.
The funds lack the ability to be responsive to changes in trends. What I mean is that the fund has three things going against its beating the individual:
1) It has a huge amount of money invested and cannot suddenly exit a stock or group of stocks without impacting that stock price; thus even if the fund managers go negative on a company or industry, they take some loss exiting over time. They also may lose time in internal debate (investment committee) of a deteriorating position.
2) Funds are usually locked to some investment type; large caps, small caps, technology, bonds, etc. I know that they have been nibbling the edges of these limits for years, but they are generally adhered to. Thus when an investment vehicle starts to go south they may do better that the investment type as a whole, but may not do as well as if they had moved to an intirely different fund classification. Ex: I have done well moving between tech (mostly wireless) and biotech/pharma for the past couple of years. The big money really does move from one to the other in cyclic fashion. Following this trend can improve your overall return.
3) Fund managers must be somewhat conservative. If they take a big risk and are wrong, they will lose a very high paying job and permanently damage their reputation. So they will err to the side of caution. Many of us believe this is why the analyst forecasts of IDCC's price are so low. Why stick your neck out once you have landed the plum job of managing billions for some top paying fund?
Given a short period of time, by being facile and willing to take some risk, I believe the individual can beat the market averages and do it consistently.
Q
PS: I wish that sometimes I would listen to my own advice; but that is human nature (getting too commit to a security).
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