The part of the Efficient Market Hypothesis left standing

I'm currently at a corporate finance training, and hence have finance topics on the mind and little time, so pardon my posting wholesale this post from James Kwak at The Baseline Scenario, with which I agree:

Brad DeLong cites Underbelly citing The Economist quoting Richard Thaler:

The [Efficient Capital Markets] hypothesis has two parts, he says: the “no-free-lunch part and the price-is-right part, and if anything the first part has been strengthened as we have learned that some investment strategies are riskier than they look and it really is difficult to beat the market.” The idea that the market price is the right price, however, has been badly dented.

I think this is exactly right. Ever since graduate school I have said that I believe in efficient markets, by which I mean the “no-free-lunch part.” The idea that some people might think that “no free lunch” implied that “prices are right” didn’t even occur to me at the time. My thinking was basically like this: yes there are bubbles, but it’s hard to tell if you are in one, and even if you can tell, you can’t tell how long it will last so you can lose a lot of money betting against it, and even if you have a very long time horizon, who’s to say you won’t be in another bubble when you finally want to sell? Put another way, you may be “right” about an asset price, but if the market is composed of lots and lots of people who are “wrong,” and those people are never going away, what does that get you?

Unfortunately, a fair amount of traditional corporate finance theory relies heavily on "the price is right." The exciting part, of course, is that the new theory is up for grabs!