The notion of 'efficient' markets

The notion of an 'efficient' market is one that you would have probably come across often. What exactly does that mean?

In most theoretical models of the modern market-economy, resources (money, goods, etc.) are deployed by their owners towards their most productive uses. Any under-utlilisation of resources creates an incentive for either their owner or some other entity (individual, firm, etc.) to step in and deploy their own resources there, effectively ending the opportunity that arose in the first place.

This idea has a particularly appealing application in the realm of financial markets. Any time the price of a security (a stock, a bond, etc.) is different from what traders think it 'ought' to be, it provides an opportunity for them to 'correct' this, either by buying or selling. This in turn changes the security's price and the process continues.

In such a knife-edge, 'cut-throat' world, you'd think that you have a collection of firms and organisations that are operating at their efficient best, vary of competition from their rival market participants.

In the real world, it would seem that this is not the case. Take an example from financial-markets themselves - mutual funds. All over the world, we have seen that many active money-managers fail to beat benchmark indices. In the cut-throat world described above, surely, you would expect these individuals/firms to run out of business. After all, why would investors spend their money paying the salaries & administrative costs of a money-managing firm/business, when they could instead invest in a low-cost passive fund and obtain better returns?

I have only used a single example here, but the fact remains that there are plenty of instances where 'slack' exists in the world of business, finance, and economics. 'Efficiency' here, is not much more than an unfortunate (albeit not accidental) misnomer.