The "pricing-it-in" conondrum
Much finance and economic theory states that over the long run, all assets should give the same returns, otherwise markets are inefficient. I'm pretty sure most people on here know that is hogwash. I was giving some thought to the process of how that would even possible, and I don't see how that could theoretically be possible.
So it is obvious that some fields are going to grow at a higher pace for at least the short term than others. In the 1990s I think it was obvious that tech stocks would grow really fast. If everybody knew this, they should be priced so that the stocks don't outperform even if the sector does. Then I thought about the process. Ok, so maybe you price tech stocks at a p/e of 40. But then what happens when their earnings grow 20%? The stock is still going to jump 20% to maintain a p/e of 40. The only way I could see it being able to price it in, was if the stock was priced at a p/e of 40, and over the years of growth it was subsequently priced at lower and lower p/e's, so that as earnings grew fast as expected, multiples contracted, so that the total price of the stock would move the same amount as the market, and eventually the sector growth becomes normnal.
No idea if anybody followed any of what I just said, but if you did, is that how theoretically markets would be efficient with pricing?