If some degree of mis-pricing exists in the stock market, it does not persist for long.

Market valuations rest on both logical and psychological factors.

The theory of valuation depends on the projection of a long-term stream of dividends whose growth rate is extraordinarily difficult to estimate.  Thus, fundamental value is never a definite number.  It is a fuzzy band of possible values, and prices can move sharply within this band whenever there is increased uncertainty or confusion.  Moreover, the appropriate risk premiums for common equities are changeable and far from obvious either to investors or to financial economists.  Thus, there is room for the hopes, fears, and favorite fashions of market participants to play a role in the valuation process.  

History provides extraordinary examples of markets in which psychology seemed to dominate the pricing process, as in the tulip-bulb mania in seventeenth century Holland and the Internet bubble at the turn of the twenty-first century.  It is doubtful that the current array of market prices ALWAYS represents the best estimate available of appropriate discounted value.

Nevertheless, the evidence suggest that stock prices display a remarkable degree of efficiency.  Prices adjust so well to important information.  Information contained in past prices or any publicly available fundamental information is rapidly assimilated into market prices.  If some degree of mis-pricing exists, it does not persist for long.

"True value will always out" in the stock market.  To paraphrase Benjamin Graham, ultimately the market is a weighing mechanism, not a voting mechanism.  

Efficient Market Hypothesis: Fact Or Fiction? "Efficient" refers to informational efficiency only.

The efficient markets hypothesis (EMH) in all of its forms, whether strong, semi-strong, or weak, is normative, not positive, i.e., it is an assertion about the way markets should behave in an ideal, utopian world, not a statement about the way markets actually do work in the real, practical world. Simple observation shows that the EMH in all its forms is fallacious. Both Kindleberger and Mackay give historical examples of stock market irrationality and inefficiency.

The efficient markets hypothesis may have advanced many academic careers, but it has not demonstrably increased the wealth of any investor over what would have been created otherwise. The EMH and the related capital asset pricing model, as opposed to the operating enterprise valuation model, may be useful as a standard of market perfection in studies of the market as a whole, but not in the valuation or selection of common stocks for investment.

The term "efficient" in the efficient markets hypothesis refers to informational efficiency only. It does not include mechanical operational efficiency or necessarily societal welfare efficiency.

The EMH explicitly assumes that all market participants have access to the same information in either a strong, semi-strong, or weak sense of the hypothesis.

• This simplifying assumption is chosen because it is necessary for mathematical tractability and thus highly convenient. 
• What makes this assumption unacceptably implausible is the meaning of the term "information" which is often overlooked. 
• Data is not information. Rather, information is data that has been processed and interpreted with judgment based on intelligence, knowledge and experience. 
• Does anyone believe that all market participants are endowed equally, not with access to data, but with the same intelligence, knowledge and experience? 

Competitive, properly-regulated markets may approach the semblance of "data efficiency" in the relative sense of eliminating arbitrage opportunities subject to trading costs and taxes, but no market is efficient in any absolute sense of equating price at all times to intrinsic economic value. This margin between value and price is the major key to successful value investing.