As we alluded to when we were discussing the efficiency of markets, fundamental analysis works if and only if you can discover important enough non-public information AND that non-public information will become public within a reasonable time frame.  It is not enough to discover the information because if other market participants don’t learn about it (there’s no “catalyst”), prices won’t reflect it and you can’t make money on it.

Now, one type of non-public information would be to have a different (better) view on the company’s prospects or on say, macroeconomic prospects.  Three things make this very difficult in practice.  Firstly, it is very difficult to be smarter than the market.  Second, even if you are correct, it often takes much longer to be proven right, hurting your returns (or worse).  This is analogous to Keyne’s famous statement that the market can remain irrational far longer than you can be solvent.  I would, of course, modify this to say that the market can remain stupid far longer than you can be solvent. Third, since the market tends to lean towards optimism most of the time, having a contrarian view usually means being short the market.  Shorting the market brings its own set of risks and is a strategy that is extraordinarily difficult with which to make money.  You may have noted that numbers 2 and 3 help illustrate why bubbles can persist for a long time.