Final answer:
The efficient market hypothesis suggests that stock prices follow a "random walk" with a trend. Therefore, the best strategy for investing is to adopt a passive approach, such as index fund investing.
Step-by-step explanation:
The efficient market hypothesis suggests that stock prices tend to follow a "random walk" with a trend. This means that stock prices behave in a way that is unpredictable and random, similar to a person taking random steps, but with an overall upward movement. Therefore, the best strategy for investing is to adopt a passive approach such as index fund investing.
Index funds are investment funds that track a specific market index, such as the S&P 500. They aim to replicate the performance of the whole market rather than trying to beat it. By investing in index funds, investors can benefit from the overall growth of the market while minimizing the risk of individual stock selection.
In contrast, trying to predict the future performance of individual stocks is difficult, if not impossible, due to the random and unpredictable nature of stock prices.