r/investing
The "you can't beat the market" crowd is the funniest contradiction in finance
The author critiques the Efficient Market Hypothesis and passive investing, arguing that active trading enables true price discovery.
- Market prices are merely the last trade, not an intrinsic value calculated by a machine.
- Quantitative and high-frequency firms consistently profit by probing the market and facilitating true price discovery.
- Active funds' underperformance is often due to structural liquidity issues from investor withdrawals, not market efficiency.
- The Efficient Market Hypothesis falsely assumes all traders are rational, ignoring liquidity-driven trades like margin calls.
- Defenders of EMH act irrationally by ignoring evidence and repeating slogans, contradicting their own theory.
"It's priced in." Priced in by who? Nobody knows the correct price of anything. A stock price is just where the last trade happened. That's it. There's no machine calculating what things should be worth.
And no, the market doesn't magically add up everyone's information and spit out the truth. Most people trading aren't even expressing a view on value. They need cash, got margin called, are rebalancing, whatever. That's not wisdom of the crowd. That's plumbing.
"Active managers underperform." Yeah because mutual funds let people pull money out. Market crashes, people panic and withdraw, manager sells the bottom. Market pumps, money floods in, manager buys the top. The structure forces bad trades. It's a plumbing problem.
But firms trading(xtx, jump, trillium, etc)and people trading(ross, etc) on minutes and hours make money consistently. Year after year. As businesses. They're not stealing from anyone. They're probing the market, testing prices, figuring out what things are worth right now. That's literally how price discovery works. That's how markets function. Without them there are no prices.
Does anyone engage with this? No. Just "index and chill" and "it's all priced in" on repeat.
"The median person can't beat the market." The median person doesn't get into Harvard. Should nobody apply? You don't even know if you're the median person. You can't know until you try.
The most hilarious part: the efficient market hypothesis assumes people are rational and update on evidence. The people defending it won't look at evidence and just repeat slogans. They are the proof their own theory is wrong.