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Reading back, i actually agree with you on most points. It just seems that you're searching for some sort of 'fairness' in a 'system' where it doesn't really ex

Reading back, i actually agree with you on most points. It just seems that you're searching for some sort of 'fairness' in a 'system' where it doesn't really exist. Just would like to add a distinction that EMH seems to hold from a retail clients perspective, but does not hold from a systematic / structural side. Markets are structurally exploitable. For example it is (generally) illegal for an institution to front run clients' orders, however it is ok if you are just a trader and know probable (not necessarily sure fire) locations of large orders and front run them.

lutusp 14y ago
> It just seems that you're searching for some sort of 'fairness' in a 'system' where it doesn't really exist. But "fairness" is what the EMH means. "Fairness" expresses in human terms what the mathematics tells us. An efficient market ruthlessly adjusts for inefficiencies and oversights, sort of like biological evolution, and evolution is the ultimate in ruthlessness and indifference to the fate of individuals. It's also fair -- each species has an equal chance to prevail. Insider trading is unfair to ordinary investors who aren't criminals. The announcement effect is unfair to ordinary investors who don't have that kind of influence over the markets. If you take away insider trading and the announcement effect, the result is ... more fair. That result is closer to an optimally efficient market. > Markets are structurally exploitable. Only by cheating (and as your example demonstrates). The SEC knows this, and they know how corrosive distrust in the fairness of equities can be for society as a whole, so they aggressively pursue cheaters. Absent cheating, equities markets cannot be gamed. Absent cheating, a long-term buy & hold position is the optimal strategy, By the way, and for what it's worth, Warren Buffett agrees.
- meninges 14y ago
  Markets have many inefficiencies of varying persistence that don't depend on insider knowledge, speed advantages, or cheating, but using simple widely available public information, some on just the price itself. I think it doesn't validate EMH if such inefficiencies disappear if exposed, if they depend on skill and systemic knowledge rather than 'cheating' - i suppose it depends on where one draws the line between cheating and skill. Discovering and exploiting them is a matter of study and work which the public is unwilling to do, and actually actively discouraged by the status quo of this industry. They're guided into ignorance and defering their finances to the sucky professionals who get paid for amount of assets under management rather than performance. Warren Buffet doesn't buy and hold indiscriminately. He buys things on sale during market crashes when the panicky public gladly sell to him. For example by selling put options he gets paid just for waiting for the discounts. And as a potentially controvertial aside, i think his size and connections within the government grant him hypocritical priviledges not available to the public (other than through owning his stock of course).
  - lutusp 14y ago
    > Discovering and exploiting them [i.e. inefficiencies] is a matter of study and work which the public is unwilling to do, and actually actively discouraged by the status quo of this industry. Yes, but it's well-established that the average investor comes out behind by trying to exploit such inefficiencies, and this outcome supports the idea that the EMH is true, and that a buy & hold position produces the best returns on average, overall. The problem with Wall Street anecdotes is that successes are given undue weight in the telling, misleading people into the idea that locating and exploiting inefficiencies puts you ahead. On average, this is false -- very, very false. > Warren Buffet doesn't buy and hold indiscriminately. Berkshire Hathaway's long-term success is easily explained -- its position is a matter of public knowledge, so others, hoping to see the same growth, buy the same stocks (too late to benefit themselves but just in time to benefit Berkshire Hathaway). It's called the "announcement effect".
    - meninges 14y ago
      I throw 100 dice 10 times and 2 of them come up 6 every time, i pick them up and call them survivors. Then i throw these 2 survivors 10 times and one of them again comes up 6 everytime - to me its worth the effort to figure out why, regardless if it's branded madoff or rentec or buffett, or that the other 99 exhibit traits of EMH. Excusing it away feels like a lazy way out, settling for mediocrity. I make a living by throwing sixes time and time again. It's not cheating, it's not easy, it takes skill and work and is doable.
      - DanBC 14y ago
        I throw a million fair dice a thousand times. Some of those dice will have very long strings of 6s. It's just math. There's nothing special about those dice.
  - deleted 14y ago
    [deleted]

lutusp 14y ago

> It just seems that you're searching for some sort of 'fairness' in a 'system' where it doesn't really exist. But "fairness" is what the EMH means. "Fairness" expresses in human terms what the mathematics tells us. An efficient market ruthlessly adjusts for inefficiencies and oversights, sort of like biological evolution, and evolution is the ultimate in ruthlessness and indifference to the fate of individuals. It's also fair -- each species has an equal chance to prevail. Insider trading is unfair to ordinary investors who aren't criminals. The announcement effect is unfair to ordinary investors who don't have that kind of influence over the markets. If you take away insider trading and the announcement effect, the result is ... more fair. That result is closer to an optimally efficient market. > Markets are structurally exploitable. Only by cheating (and as your example demonstrates). The SEC knows this, and they know how corrosive distrust in the fairness of equities can be for society as a whole, so they aggressively pursue cheaters. Absent cheating, equities markets cannot be gamed. Absent cheating, a long-term buy & hold position is the optimal strategy, By the way, and for what it's worth, Warren Buffett agrees.

meninges 14y ago
Markets have many inefficiencies of varying persistence that don't depend on insider knowledge, speed advantages, or cheating, but using simple widely available public information, some on just the price itself. I think it doesn't validate EMH if such inefficiencies disappear if exposed, if they depend on skill and systemic knowledge rather than 'cheating' - i suppose it depends on where one draws the line between cheating and skill. Discovering and exploiting them is a matter of study and work which the public is unwilling to do, and actually actively discouraged by the status quo of this industry. They're guided into ignorance and defering their finances to the sucky professionals who get paid for amount of assets under management rather than performance. Warren Buffet doesn't buy and hold indiscriminately. He buys things on sale during market crashes when the panicky public gladly sell to him. For example by selling put options he gets paid just for waiting for the discounts. And as a potentially controvertial aside, i think his size and connections within the government grant him hypocritical priviledges not available to the public (other than through owning his stock of course).
- lutusp 14y ago
  > Discovering and exploiting them [i.e. inefficiencies] is a matter of study and work which the public is unwilling to do, and actually actively discouraged by the status quo of this industry. Yes, but it's well-established that the average investor comes out behind by trying to exploit such inefficiencies, and this outcome supports the idea that the EMH is true, and that a buy & hold position produces the best returns on average, overall. The problem with Wall Street anecdotes is that successes are given undue weight in the telling, misleading people into the idea that locating and exploiting inefficiencies puts you ahead. On average, this is false -- very, very false. > Warren Buffet doesn't buy and hold indiscriminately. Berkshire Hathaway's long-term success is easily explained -- its position is a matter of public knowledge, so others, hoping to see the same growth, buy the same stocks (too late to benefit themselves but just in time to benefit Berkshire Hathaway). It's called the "announcement effect".
  - meninges 14y ago
    I throw 100 dice 10 times and 2 of them come up 6 every time, i pick them up and call them survivors. Then i throw these 2 survivors 10 times and one of them again comes up 6 everytime - to me its worth the effort to figure out why, regardless if it's branded madoff or rentec or buffett, or that the other 99 exhibit traits of EMH. Excusing it away feels like a lazy way out, settling for mediocrity. I make a living by throwing sixes time and time again. It's not cheating, it's not easy, it takes skill and work and is doable.
    - DanBC 14y ago
      I throw a million fair dice a thousand times. Some of those dice will have very long strings of 6s. It's just math. There's nothing special about those dice.
- deleted 14y ago
  [deleted]