Rex Sinquefield, co-founder of Dimensional Fund Advisors made the following quote to highlight market efficiency – “So who still believes markets don’t work? Apparently it is only the North Koreans, the Cubans and the active managers.” He followed this with – “It is well to consider, briefly, the connection between the socialists and the active managers. I believe they are cut from the same cloth. What links them is a disbelief or skepticism about the efficacy of market prices in gathering and conveying information.”
However, it looks as though the Cubans are beginning to change. There has been gradual thawing in relations between the US and Cuba over recent years, which has moved on last week with the announcement that a South Florida bank has become the first from the United States to sign a correspondent banking relationship in Cuba, a potential boost for US-Cuban commerce following newly restored diplomatic relations between the longtime adversaries.
With one of the few communist countries left beginning to look as though they may be taking the first tentative steps toward the free markets, perhaps this underscores two of our fundamental investment principles – capitalism works and markets work. Capitalism isn’t perfect, but it is overwhelmingly the most successful economic model that has been devised, and it is the engine that drives investment returns. Markets aren’t perfectly efficient, but they aggregate all known information, current news and future expectations into a price that is largely correct. Knowing that markets are broadly efficient has enabled advisers like Callisto to build portfolios based on evidence, not speculation.
It will be interesting to see how the Cuban authorities start to grasp these principles and move their economy forward.