The Efficient Market Hypothesis is a theory that asserts that share prices always factor in all information, meaning they’re always traded at their fair value, making it impossible for investors to ‘beat the market’ indefinitely. A result following from this idea is that the risk-reward tradeoff is perfectly symmetrical.
The truth of this theory is highly debated and the firmness of people’s belief in it ranges on a spectrum. Strong supporters of this theory believe that no level of analysis and strategising is futile and will never produce any net profit over time. It makes sense for them to prefer investing in passively managed investment vehicles like index funds and ETFs instead of actively managed ones.
People who do not support the efficient market theory will believe that it’s possible for skilled and experience analysts to exploit market inefficiencies (which are situations where an asset’s price does not accurately reflect its true value) to reliably generate a return.