Respect for efficiency!

Respect for efficiency says that before we embark on a course of action, we should ask some questions: have mistakes and mispricings been driven out through investors’ concerted efforts, or do they still exist, and why?
Think of it this way:

•  Why should a bargain exist despite the presence of thousands of investors who stand ready and willing to bid up the price of anything that’s too cheap?
•  If the return appears so generous in proportion to the risk, might you be overlooking some hidden risk?
•  Why would the seller of the asset be willing to part with it at a price from which it will give you an excessive return?
•  Do you really know more about the asset than the seller does?
•  If it’s such a great proposition, why hasn’t someone  else snapped it up?

Respect for efficiency!