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Really? I always thought the opposite is true: trading strategies work BECAUSE they get commodified. I mean, it's like self-fulfilling prophecy: if enough mutua

by mamon 8y ago

Really? I always thought the opposite is true: trading strategies work BECAUSE they get commodified. I mean, it's like self-fulfilling prophecy: if enough mutual funds managers look at the price chart, draw the same magic lines, apply the same magic formulas, then they reach the same conclusion "buy this stock". And then they start throwing their billions USD of assets at it, and the stock price actually starts climbing up.

adrianN 8y ago
But people who have better insight into the real performance of those companies can make more money if more people just apply magic formulas.
- askmike 8y ago
  The most successful fund for the last decade(s) fits more one the magic formulas side (the Medallion Fund from Renaissance Technologies). EDIT: Oops, I misread your comment.
simonh 8y ago
I think both can be true, depending on the details of the strategy and the conditions in which it’s valid. Sometimes common knowledge of a strategy can lead to the elimination of the situation in which it works. Participants can anticipate it and so the conditions no longer occur. In other cases so many participants pike into the strategy, in which there is only so much money to be made, that returns get so thin that only the very most efficient and smart participants can get anything out if it. Arbitrage is a good example, once its known it can get traded out of the market very rapidly.
- allahreturns 8y ago
  This is precisely what's happening with dropshpping. Now soon many people are interested in that, making money is lately just too difficult and most are making money selling courses to gullible people.
quantummkv 8y ago
The stock market is basically a transfer of wealth from one person to another. For a good strategy to work, someone has to make a bad strategy. If everyone gets a good commodity strategy and applies it you will end up in a stalemate. Maybe not instantly but somewhere down the line.

by mamon 8y ago

adrianN 8y ago

But people who have better insight into the real performance of those companies can make more money if more people just apply magic formulas.

askmike 8y ago
The most successful fund for the last decade(s) fits more one the magic formulas side (the Medallion Fund from Renaissance Technologies). EDIT: Oops, I misread your comment.

simonh 8y ago

I think both can be true, depending on the details of the strategy and the conditions in which it’s valid. Sometimes common knowledge of a strategy can lead to the elimination of the situation in which it works. Participants can anticipate it and so the conditions no longer occur. In other cases so many participants pike into the strategy, in which there is only so much money to be made, that returns get so thin that only the very most efficient and smart participants can get anything out if it. Arbitrage is a good example, once its known it can get traded out of the market very rapidly.

allahreturns 8y ago
This is precisely what's happening with dropshpping. Now soon many people are interested in that, making money is lately just too difficult and most are making money selling courses to gullible people.

quantummkv 8y ago

The stock market is basically a transfer of wealth from one person to another. For a good strategy to work, someone has to make a bad strategy. If everyone gets a good commodity strategy and applies it you will end up in a stalemate. Maybe not instantly but somewhere down the line.