Markets Efficiency

Managerial Skills and Market Efficiency





  • Managerial Skills and Market Efficiency

Every organization has to ensure that its products have a large share of the market. However, achieving this is difficult for most films due to market inefficiencies. The market dynamics affect organization managers’ ability to achieve their desired marketing goals. For an organization to be successful, it has to ensure that its cost of production and distribution is lower than the revenue. The following discussion indulges on market efficiencies to determine why it is difficult to achieve in the current business environment.

    Quote 1: After costs, only the top 3% of managers produce a return that indicates they have sufficient skill to just cover their costs, which means that going forward, and despite extraordinary past returns, even the top performers are expected to be only as good as a low-cost passive index fund. The other 97% can be expected to do worse.

It is true as Eugene Fama puts it that only 3% of the managers get profit after sales in the market. Most business managers report negative returns hence affecting organization growth. Due to the changing business environment business managers needs to have certain skills and competence to ensure that the organizations make a profit from its sales (Ellis, 2005). Most business leaders lack these skills to ensure that they lower their cost of production and ensure that the organization makes a good return. It is vital for managers to undergo training to ensure that they understand the market dynamic fully and appreciate the need for understanding consumer behavior. There are various causes of a negative return, which affect the organization ability to achieve its goals (Barnes, 2009). These reasons are common in all the industries in the market. The managers lack the skills of understanding the competitive environment and the appropriate techniques for dealing with this issue. Globalization has increased competition in the business world, hence company managers need to have the skills of developing competitive strategies to ensure that the firm maintains a competitive edge over other firms (Ellis, 2005).

Some business managers invest a lot of the organization capital in the hope of high return on investment. They assume that the market will consume their products hence creating profits. However, this is not always the case in the business world. For instance, an entrepreneur may decide to use most of his or her capital in funding inventories for his or her product without any purchase orders. This will increase other costs such as warehousing, or the goods may expire before they are all sold in the market (Barnes, 2009). The goods may not be sold since the manager did not test the market to understand if the market accepts the product. Market efficiency is determined by the quality of investors to make the right decision on what to invest in and the how much they should spend in a certain goal. There is need to ensure that business managers have the appropriate skills useful for the market to grow. Several types of research such as Pension Institute have confirmed Fama’s ideas that most business managers fail to achieve the desired objective. Many managers fail to attain their set benchmarks due to market inefficiencies (Ellis, 2005). This is due to factors such as poor decision-making, poor advice, or performance chasing behavior. The process of selecting manager based on their past performance is the main cause of market inefficiency. Sometimes a business manager may be successful due luck, hence making a good return. If the same manager is employed in another organization, he or she may fail to deliver due to environmental change (Barnes, 2009).

Research shows that most of the active managers under-perform hence achieving negative returns. Manager efficiency can be improved through training or developing passive benchmarks for the managers to achieve. The change will ensure business growth and enhance return on investment. A Manager needs to make rational judgments based on the market research. In addition, they need to ensure that the market changes are taken care off before investing (Ellis, 2005). In every venture, there is risk involved which prevents a firm from achieving its goals, hence the manager must have the skills of developing the appropriate risk management plan for the business investment.

    Quote 2:I would be a bum on the street with a tin cup if markets were always efficient.

This view of the market has been led to a debate where some scholars agree with Buffett’s view of the market. Those who agree with his view of the market based their fact on that it is difficult to forecast the market for a product. For instance, it is hard for an investor to predict the stock market the value of shares of a company. This proves that the business manager have to deal with the prospect of uncertainty in the market (Damodaran, 2012). Product prices, demand, and supply keep on changing. The market is affected by various internal and external factors hence subject to change, which makes it hard for investors to determine to be certain on what to invest in the market. However, some argue that an effective market research can help in developing an efficient market. They question this view since most business operates based on their plan. In addition, these businesses have grown due to such investment hence making this view incorrect. Buffett’s view of the market was general and did not consider some factors such as monopoly business that have a sure market since their environment are controlled (Barnes, 2009). Legal, economic, political, and technological changes have contributed to market inefficiency.


  • Conclusion


Business managers need to have the appropriate skills to ensure business returns on their enlistments. Lack of these skills has led to the failure of much business in the world. A business manager must understand the business environment of the firm since it enables them to identify areas that need to be changed. Market inefficiency is caused by the changing market feature that makes it hard to determine consumer behavior and the appropriate investment.


Barnes, P. (2009). Stock market efficiency, insider dealing and market abuse. Farnham: Gower.

Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset, University edition. Hoboken: John Wiley & Sons.

Ellis, C. W. (2005). Management skills for new managers. New York: AMACOM.