If you think everything is just random, you should educate yourself the impact of superior information sources or technology on producing returns. Are you telling me someone who runs the fastest market data feed between Chicago and New Jersey, doing arbitrages between S&P futures and S&P ETFs is just getting lucky over and over again, and it will eventually be revealed that they just won 30,000 coin tosses in a row?
Correct. There are numerous studies showing professional traders (individual or companies) are in fact no better than randomly picking stocks. Just the sheer number of players and variables will eventually produce winners, then we will justify why it happened in the first place.
Do you understand that 'studies' are not necessarily reality? I know the "I fucking love science" crowd has replaced priests with professors, but professors, their data and their logic are also highly fallible.
How about you go ahead and mock up a probability model about how a company like Jump Trading can make 100s of market neutral bets every day for ten years, and end up being lucky to make money on 95% of those days. The probability of that happening due to randomness around a 50% probability on each trade is probably lower than 1 in the number of atoms in the universe.
This is a contradiction. You first assume complete market efficiency (assets are priced in) to support that the market is random and unpredictable. Then you say that a hedge funds' payroll is no better than random guessing (something you could scale up without hiring anyone). This means that quants are grossly overpaid (assets don't reflect their true price) and that the trader's market is highly inefficient... That's having your cake and eating it too: a rational irrational market.
And it is a hypothesis that can't be disproven or proven, since, in a round-about way, it concerns non-computable concepts like Kolmogorov Complexity/Randomness (The efficient market hypothesis basically states that the stock market is an optimally compressed computer program, there are no discernible patterns left to reduce the "file" size).
There are numerous tried and tested ways to beat the market, including:
- Have more information than other players
- Have better models than other players
- Make faster decisions than other players
- Have enough energy to perturb the system and predict the outcome (this is the big one that is out of reach of most individuals and non-Physics PhD's).
Survivor bias is of course a very real phenomenon, but like other incomplete information games that can be won, or even solved, algorithmically: Poker, international diplomacy, ..., we would not conflate pure luck with the real skills required to play those games consistently well.
Think about how the underlying market works though. Is success or failure actually a random process? Or are cause and effect relationships happening? Isn't it possible to identify traits of a good business that others aren't recognizing.
