>But don't take my word for it -- instead, think. If there really was a surefire way to beat market averages, it wouldn't remain a secret for long, then everyone would practice it.
Not if it's costly. By that I mean what if there is a market oracle that can pick tomorrows winners, but you have to pay X dollars to pull the crank and get the info.
In that case, it could be possible to "beat the market" in the sense that your stocks overperform, but you do not actually beat the market if you factor in the cost of the oracle.
>A closely watched consumer confidence number that routinely moves markets upon release is accessed by an elite group of traders, for a fee, a full two seconds before its official release, according to a document obtained by CNBC.
Another situation would be that you could overperform the market if you hired thousands of employees that analysed the markets, but not so much that you could pay their wages and still win.
It could also be the case that some people have a comparative advantage. Maybe they have certain skills that enable them to win were other people cannot.
That's an announcement effect, not a method for beating the market. It exploits people's stupidity, not their intelligence. For a classic announcement effect, there are an equal number of winners and losers, and the average return is zero. In this specific example, some people get to buy the stocks in advance of the public announcement, then the public investors stupidly and dutifully buy stocks whose price has already peaked and is about to fall. It transfers money from uneducated investors to educated ones. If the uneducated investors realized what was being done to them, they would not invest and the system would collapse.
A typical announcement effect scam are online penny stock touters, who:
1. Buy a worthless stock.
2. Tout the stock online: "I just heard from my cousin that this stock is about to move!"
3. Wait for some idiots to invest in the stock.
4. Sell.
> It could also be the case that some people have a comparative advantage. Maybe they have certain skills that enable them to win were other people cannot.
You're on the money in both this post and the grandparent. However, I'd urge you to examine your style. There's no need to condescend. In particular:
> I just proved it. If you didn't understand the above proof, read it again.
> I can't believe you aren't getting this.
Plenty of otherwise rationally minded people have a hard time reasoning about this stuff. If I had a dollar for every time someone suggested that you can beat the house by playing a Martingale... gosh! You'll have a much easier time persuading people if you don't insult them.
I agree with your point, but in the 21st century, I have a hard time accepting that many people ignore basic scientific principles -- in particular, the null hypothesis, which in essence says that a given proposition is assumed to be false until there's evidence for it.
> Plenty of otherwise rationally minded people have a hard time reasoning about this stuff.
Rationality is what rationality does. There's a devious investment scam that, once explained, seems obvious, but most people fall for it unless forewarned. I call it the "Miracle Man" scam. Here it is:
I would like to live in a world where a scam like "Miracle Man" couldn't work, because people would say "It seems too good to be true, therefore chances are it's not true."
Not if it's costly. By that I mean what if there is a market oracle that can pick tomorrows winners, but you have to pay X dollars to pull the crank and get the info.
In that case, it could be possible to "beat the market" in the sense that your stocks overperform, but you do not actually beat the market if you factor in the cost of the oracle.
Real world example: http://www.cnbc.com/id/100809395
>A closely watched consumer confidence number that routinely moves markets upon release is accessed by an elite group of traders, for a fee, a full two seconds before its official release, according to a document obtained by CNBC.
Another situation would be that you could overperform the market if you hired thousands of employees that analysed the markets, but not so much that you could pay their wages and still win.
It could also be the case that some people have a comparative advantage. Maybe they have certain skills that enable them to win were other people cannot.