How can you believe the efficient market theory after the events of October 2008? The stock market may be unpredictable, but it is far from rational. IMHO, the analysis "A Random Walk Down Wall St" does not really understand the nature of the modern stock market (although reading it is better than listening to Jim Cramer).
The efficient market hypothesis says that you cannot predict stock returns using past prices and indicators; future price movements are due to news. Since news are unpredictable (by definition), returns are random.
In October 2008 there were some pretty shocking news and the market went down. I don't see how that invalidates the hypothesis.
EMH might have its weaknesses, and it might be even seriously flawed. But it's not invalidated because there was a crash or because people do "irrational" things, unless this irrationality is predictable.
(I believe the definition of "news" must be a bit wide for the hypothesis to work. If a big investor changes his mind about his risk tolerance and decides to sell a big chunk of stock, this is "news".)
It's not the crash that invalidates it, it's the extreme variance. At one point, the S&P had two swings of 10% in one day. These kinds of swings were common, and they often happened without any shocking news arriving in between the swings.
Since the mid-1980's, stocks have traded as collectibles, not as cash flows. Thus the price of stocks is not based on fundamentals, but on game theory. The stock market is a coordination game with massive feedback loops in it.
Just for the sake of clarity, my post didn't go so far as to endorse the efficient market hypothesis as 100% valid. I do however think it is fundamental to have an understanding of the basic precepts before diving in the market.
I would agree that the market is not purely efficient (in the EMH sense). But I don't think the inefficiencies are things that an individual investor with $2000 can reliably make money on.
