“Momentum is a big embarrassment for market efficiency,” he proclaimed, saying he “hopes it goes away” and that the concept was “not exploitable.” – Eugene Fama from CFA Society of Chicago keynote speech.

“Never let the truth get in the way of a good story.”― Mark Twain

You cannot help but think about Thomas Kuhn and The Evolution of Scientific Revolutions when there is now a discussion of market efficiency. During the 70’s and 80’s market efficiency studies “proving” this hypothesis took the field of finance by storm only to have alternative studies and work chip away at the theory through the 90’s and 2000’s only to currently be relegated to a simplifying assumption or a view as “frictionless” market.

Thousands of finance students and MBA’s were indoctrinated with the idea that markets were efficient. We now have behavioral, limits to arbitrage, transaction costs, agent-based, and time varying risk premium stories to explain momentum and trends in prices. The theory of finance is much broader and those that were efficient market supporters have had to adapt and change their views.

Still financial markets are competitive. It is hard to make money in money management. Few have been able to beat benchmarks. Passive low fee investing is a good investment starting point. Perhaps excess returns are mainly compensation for the hard work of finance or the compensation for risk. Nevertheless, the momentum and trend-followers who were outside the mainstream can take pride that their efforts were not in vain. They were rewarded with profits and now the knowledge that those that said it was not possible have to eat crow.