One of Warren Buffett’s most understated observations about markets cuts uncomfortably close to the truth. While discussing how stock prices move relative to intrinsic value, he noted in his 1996 shareholders' letter that when shares trade back and forth between investors, “generally, the sophisticated have an edge over the innocents in this game.” It wasn’t a moral judgment. It was a warning.
As then-CEO of Berkshire Hathaway (BRK.B) (BRK.A), Buffett was describing what happens when market prices drift away from business reality. When a stock temporarily overperforms or underperforms the underlying company, someone benefits from that gap. The gains don’t appear out of thin air; they come from the other side of the trade. And over time, the people with better information, better incentives, and better emotional control tend to be the ones collecting those gains.
