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> I see articles like this come past on the Internet every once in awhile, and they are invariably received with hostility. "Sampling Bias!" "That guy could on

> I see articles like this come past on the Internet every once in awhile, and they are invariably received with hostility. "Sampling Bias!" "That guy could only do this because of $X!" "That wouldn't work today in this economy!" "If all this stuff really worked, why tell us about it instead of milking it for millions. He's probably just trying to sell us his book!" Lots of reasons why we should quickly dismiss everything that was said above and carry on the way we were before. Part of me thinks the worst thing I ever learned about was market efficiency. Once you've heard that argument from a professor, you can apply it to just about anything. Heck I even had colleagues use it against me, despite being specifically hired to beat the unbeatable market. The guy in the article is right though, it's bogus. There's lots of little things you can do that might turn into a business. The existing players have not hoovered up all the opportunity, and new opps come along all the time. People talk about things that are profitable even if they haven't locked it all up for themselves.

varelse 5y ago
There's definitely some survivor bias here - that doesn't diminish from what he's achieved in any way. But also as Krishnamurti said "Truth is a pathless land." And as Lin Chi said "If you meet Buddha on the road, kill him." Take the parts here that resonate with you and build the rest the way in a way that works for you. It will probably take commitment and multiple failed attempts to get there. Just accept that from the get-go. Not everyone has the tolerance for risk to go down this road though.
CPLX 5y ago
> Part of me thinks the worst thing I ever learned about was market efficiency. Once you've heard that argument from a professor, you can apply it to just about anything. This is a really astute observation. Both my parents were economics professors and I have a degree in economics. I feel like this concept was instilled in my core, and poisoned my thinking, but it’s fundamentally not true. I’ve come to finally learn in old age that the market is full of inefficiencies that can be exploited, they are everywhere. If you’re reasonably smart, or even just well-informed on a specific subject, things that seem obvious and trivial to you will in fact be observations you can profit from. The world is full of $20 bills lying on the ground to reference a popular punch line.
- chubot 5y ago
  I agree that there are ineffiencies everywhere. But does anyone actually teach that market efficiency means you shouldn't try to identify opportunities? Doesn't market efficiency just say that someone is going to be the one to identify the inefficiency and make a ton of money in the process? The market doesn't become efficient unless people do things.
  - CPLX 5y ago
    Yes as a theoretical construct the concept is totally fine. But speaking as someone who has heavy exposure to mainstream academic economics it’s usually taken way way further than that. There’s a concept called the EMH and I think there’s a very strong tendency in Econ and pop culture to skip ahead and assume the hypothesis is basically true most of the time, often in the face of painfully obvious evidence to the contrary.
  - VRay 5y ago
    I found an arbitrage opportunity with cryptocurrency a few years back, but it took two months to convince my friend to let me run the trading bot I cobbled together to exploit it on his account (and that whole time I was waiting for my accounts to get approved..) It magically generated about $8000 in a couple of days, and then the market came crashing down and the inefficiency it was exploiting disappeared forever Pretty **ing frustrating, and it's all the Efficient Market Hypothesis' fault You should look up the debates that Warren Buffett has had with people about the EMH, it's insane
    - MichaelZuo 5y ago
      Well in hindsight that sounds like you got compensated for the risks you took. Especially since you didn’t say $8000 out of how much moved…
    - sommohapatra 5y ago
      What was the arbitrage? I figure if it doesn't work anymore, no loss in sharing
anm89 5y ago
Deleted
- chrisdalke 5y ago
  I think you are both agreeing -- He's saying that what's "bogus" is the idea that the market is perfectly efficient and there are no opportunities.
  - anm89 5y ago
    You are correct.
mancerayder 5y ago
> Part of me thinks the worst thing I ever learned about was market efficiency I agree and I think it's partially a circular argument. In discussions of stocks, you'll hear that one 'cannot beat' 'the stock market' and you'll hear phrases like, "already priced in" "efficient market hypothesis" and so forth. Which is different than the sentiment that it's 'very hard' or even 'unlikely' to do something like that, which I sympathize with.
ethn 5y ago
Market Efficiency is a convenient argument of faith which has a more nuanced rational basis, but absolutely in the general case is untrue. In the long-term, markets are certainly efficient. However, the period of inefficiency is determined by the absolute quantity of profit dollars available in the market which in itself determines the competition. That is, the quantity of ticks (time) required for a dynamic optimization w.r.t. profit extraction is the measure of competition in some market, and thereby the degree of efficiency. It is then true, that in the most competitive markets, the ones with the most capital, have a very small window of inefficiency, but they do exist. It requires a lot of capital to dynamically extract profit from those inefficiencies. An example of this would be the near hegemony of Citadel Securities in making markets. It is impossible for anyone today to compete in the market-making (an advanced arbitrage) industry without tons of capital. However, we are time-bounded beings so there is always present an inefficient market. The challenge of the proprietor is then to determine that market which can provide a return to his constrained capital. For instance, a restaurant can give a 15% annual ROI, which outperforms the S&P. The Citadel is not going to be interested in this inefficiency because that ROI is unavailable to the amount of capital they're trying to invest. So what we see is that the most competitive markets beget the most capital, because they have the most profit available to extract absolutely; then the most amount of resources, where capital is the analogue, are invested into those markets--so any inefficiency is quickly eroded. This means that just like the restaurant, there are markets that remain untouched for long periods of time due to their inability to return large amounts of capital in absolute terms. These markets then have a great ROI in terms of percent. It is these markets that are available to the proprietor with low capital. This is why the startup advice of finding a niche first is so salient, they are always necessarily underserved non-competitive markets. There's the other cycle from crossing-the-chasm which removes enterprises from this market who have the same idea as they scale, that's a separate explication, but this cycle allows the period of inefficiency to be maintained in those markets through that self-regulation.
- Retric 5y ago
  Efficiency isn’t about mathematical perfection, but when you dig into the numbers it’s rare to find significant exceptions. First efficiency isn’t about winners and losers. A lottery has negative returns even though someone still wins. Similarly Google was an absolutely great investment yet venture capital firms tend to under preform the market on average. The nuances run deep. T-Bills seemingly vastly under preform the stock market, yet buyers are generally being rational.
milesvp 5y ago
Two economists are walking down the street and pass by a hundred dollar bill without picking it up. A little while later one turns to the other and asks “was that a hundred dollar bill on the ground?” To which the other replies “nope, if it was someone would have picked it up already.” I’m with you, this joke haunts me daily. I studied economics in undergrad, and market efficiency is such a basic tenet that it’s really hard to see opportunities that don’t just look like a mirage.
- tW4r 5y ago
  The first one then replies: "no, you’re not getting it, it’s a VC funded business aggressively attracting customers"
- nixnax 5y ago
  That joke is wildly inaccurate. The $100 is vaguely seen in the middle of the street during traffic. Is it actually $100? Maybe it's just a dollar bill. And are you good enough to grab it without getting hit? Maybe it's true if you come from a rich background and have family wealth to fall back on, which I suspect is where most of these people are coming from.
- Gimpei 5y ago
  This is quite a caricature of the profession. I studied economics in grad school and most of the time was spent discussing all the ways in which the market is not efficient. Not saying there aren't problems with economics, cough cough DSGE cough, but I don't think assuming efficiency is one of them.
- andrewjl 5y ago
  This joke (despite being funny) is somewhat misleading of actual economic theory for 3 reasons: 1) market efficiency occurs over the long-term, 2) shocks (of the exogenous and endogenous kind) tend to reset the point at which markets clear, 3) both 1 (duration) & 2 (frequency) are far greater in magnitude under anything like real world conditions. Still more so within the tech industry.
  - 5y ago
caffeine 5y ago
I think an efficient market is for intro to economics what a frictionless vacuum is for intro to physics - a way of accessing some fundamental truths, rather than a description of something frequently encountered in the world. The existence of the hedge fund industry is a paradox for the idea of efficient markets. If markets are efficient, then the value added of hedge funds is zero. And if markets are efficient, hedge funds should only be able to charge their value added in fees, which is zero. Hedge funds charge a lot of fees. PE and VC funds charge even more. So markets are not efficient.
Aunche 5y ago
Of course market ineffiencies exist, but you need to stop and think if you're doing something novel. This would help people avoid pyramid and Ponzi schemes.
iamtheworstdev 5y ago
lol. i have a software idea that i'm working on .. there are many competitors but they're all terrible.. and someone told me "if anything, that market today is in total equilibrium, why would you try to compete in it?" it reminded me of the time i did start my own business and the number of people that tried to talk me out of it was overwhelming. that's when i learned that a lot of people hate the successes and freedoms that others have.
throw123123123 5y ago
This is not an example of a market inefficiency. There is risk, opportunity cost, etc on doing a lifestyle like this one.

varelse 5y ago

There's definitely some survivor bias here - that doesn't diminish from what he's achieved in any way. But also as Krishnamurti said "Truth is a pathless land." And as Lin Chi said "If you meet Buddha on the road, kill him." Take the parts here that resonate with you and build the rest the way in a way that works for you. It will probably take commitment and multiple failed attempts to get there. Just accept that from the get-go. Not everyone has the tolerance for risk to go down this road though.

CPLX 5y ago

> Part of me thinks the worst thing I ever learned about was market efficiency. Once you've heard that argument from a professor, you can apply it to just about anything. This is a really astute observation. Both my parents were economics professors and I have a degree in economics. I feel like this concept was instilled in my core, and poisoned my thinking, but it’s fundamentally not true. I’ve come to finally learn in old age that the market is full of inefficiencies that can be exploited, they are everywhere. If you’re reasonably smart, or even just well-informed on a specific subject, things that seem obvious and trivial to you will in fact be observations you can profit from. The world is full of $20 bills lying on the ground to reference a popular punch line.

chubot 5y ago
I agree that there are ineffiencies everywhere. But does anyone actually teach that market efficiency means you shouldn't try to identify opportunities? Doesn't market efficiency just say that someone is going to be the one to identify the inefficiency and make a ton of money in the process? The market doesn't become efficient unless people do things.
- CPLX 5y ago
  Yes as a theoretical construct the concept is totally fine. But speaking as someone who has heavy exposure to mainstream academic economics it’s usually taken way way further than that. There’s a concept called the EMH and I think there’s a very strong tendency in Econ and pop culture to skip ahead and assume the hypothesis is basically true most of the time, often in the face of painfully obvious evidence to the contrary.
- VRay 5y ago
  I found an arbitrage opportunity with cryptocurrency a few years back, but it took two months to convince my friend to let me run the trading bot I cobbled together to exploit it on his account (and that whole time I was waiting for my accounts to get approved..) It magically generated about $8000 in a couple of days, and then the market came crashing down and the inefficiency it was exploiting disappeared forever Pretty **ing frustrating, and it's all the Efficient Market Hypothesis' fault You should look up the debates that Warren Buffett has had with people about the EMH, it's insane
  - MichaelZuo 5y ago
    Well in hindsight that sounds like you got compensated for the risks you took. Especially since you didn’t say $8000 out of how much moved…
  - sommohapatra 5y ago
    What was the arbitrage? I figure if it doesn't work anymore, no loss in sharing

anm89 5y ago

Deleted

chrisdalke 5y ago
I think you are both agreeing -- He's saying that what's "bogus" is the idea that the market is perfectly efficient and there are no opportunities.
- anm89 5y ago
  You are correct.

mancerayder 5y ago

> Part of me thinks the worst thing I ever learned about was market efficiency I agree and I think it's partially a circular argument. In discussions of stocks, you'll hear that one 'cannot beat' 'the stock market' and you'll hear phrases like, "already priced in" "efficient market hypothesis" and so forth. Which is different than the sentiment that it's 'very hard' or even 'unlikely' to do something like that, which I sympathize with.

ethn 5y ago

Market Efficiency is a convenient argument of faith which has a more nuanced rational basis, but absolutely in the general case is untrue. In the long-term, markets are certainly efficient. However, the period of inefficiency is determined by the absolute quantity of profit dollars available in the market which in itself determines the competition. That is, the quantity of ticks (time) required for a dynamic optimization w.r.t. profit extraction is the measure of competition in some market, and thereby the degree of efficiency. It is then true, that in the most competitive markets, the ones with the most capital, have a very small window of inefficiency, but they do exist. It requires a lot of capital to dynamically extract profit from those inefficiencies. An example of this would be the near hegemony of Citadel Securities in making markets. It is impossible for anyone today to compete in the market-making (an advanced arbitrage) industry without tons of capital. However, we are time-bounded beings so there is always present an inefficient market. The challenge of the proprietor is then to determine that market which can provide a return to his constrained capital. For instance, a restaurant can give a 15% annual ROI, which outperforms the S&P. The Citadel is not going to be interested in this inefficiency because that ROI is unavailable to the amount of capital they're trying to invest. So what we see is that the most competitive markets beget the most capital, because they have the most profit available to extract absolutely; then the most amount of resources, where capital is the analogue, are invested into those markets--so any inefficiency is quickly eroded. This means that just like the restaurant, there are markets that remain untouched for long periods of time due to their inability to return large amounts of capital in absolute terms. These markets then have a great ROI in terms of percent. It is these markets that are available to the proprietor with low capital. This is why the startup advice of finding a niche first is so salient, they are always necessarily underserved non-competitive markets. There's the other cycle from crossing-the-chasm which removes enterprises from this market who have the same idea as they scale, that's a separate explication, but this cycle allows the period of inefficiency to be maintained in those markets through that self-regulation.

Retric 5y ago
Efficiency isn’t about mathematical perfection, but when you dig into the numbers it’s rare to find significant exceptions. First efficiency isn’t about winners and losers. A lottery has negative returns even though someone still wins. Similarly Google was an absolutely great investment yet venture capital firms tend to under preform the market on average. The nuances run deep. T-Bills seemingly vastly under preform the stock market, yet buyers are generally being rational.

milesvp 5y ago

Two economists are walking down the street and pass by a hundred dollar bill without picking it up. A little while later one turns to the other and asks “was that a hundred dollar bill on the ground?” To which the other replies “nope, if it was someone would have picked it up already.” I’m with you, this joke haunts me daily. I studied economics in undergrad, and market efficiency is such a basic tenet that it’s really hard to see opportunities that don’t just look like a mirage.

tW4r 5y ago
The first one then replies: "no, you’re not getting it, it’s a VC funded business aggressively attracting customers"
nixnax 5y ago
That joke is wildly inaccurate. The $100 is vaguely seen in the middle of the street during traffic. Is it actually $100? Maybe it's just a dollar bill. And are you good enough to grab it without getting hit? Maybe it's true if you come from a rich background and have family wealth to fall back on, which I suspect is where most of these people are coming from.
Gimpei 5y ago
This is quite a caricature of the profession. I studied economics in grad school and most of the time was spent discussing all the ways in which the market is not efficient. Not saying there aren't problems with economics, cough cough DSGE cough, but I don't think assuming efficiency is one of them.
andrewjl 5y ago
This joke (despite being funny) is somewhat misleading of actual economic theory for 3 reasons: 1) market efficiency occurs over the long-term, 2) shocks (of the exogenous and endogenous kind) tend to reset the point at which markets clear, 3) both 1 (duration) & 2 (frequency) are far greater in magnitude under anything like real world conditions. Still more so within the tech industry.
- 5y ago

caffeine 5y ago

I think an efficient market is for intro to economics what a frictionless vacuum is for intro to physics - a way of accessing some fundamental truths, rather than a description of something frequently encountered in the world. The existence of the hedge fund industry is a paradox for the idea of efficient markets. If markets are efficient, then the value added of hedge funds is zero. And if markets are efficient, hedge funds should only be able to charge their value added in fees, which is zero. Hedge funds charge a lot of fees. PE and VC funds charge even more. So markets are not efficient.

Aunche 5y ago

Of course market ineffiencies exist, but you need to stop and think if you're doing something novel. This would help people avoid pyramid and Ponzi schemes.

iamtheworstdev 5y ago

lol. i have a software idea that i'm working on .. there are many competitors but they're all terrible.. and someone told me "if anything, that market today is in total equilibrium, why would you try to compete in it?" it reminded me of the time i did start my own business and the number of people that tried to talk me out of it was overwhelming. that's when i learned that a lot of people hate the successes and freedoms that others have.

throw123123123 5y ago

This is not an example of a market inefficiency. There is risk, opportunity cost, etc on doing a lifestyle like this one.