Re:Don't bet on the most likely winner
by WA on Monday July 06, 2020 @08:30AM
(#23747167)
I liked the first part for the very reason that it didn’t apply the strict form of EMH. It explicitly says: information that is widely known. Not all information is priced in equally and your edge might be that you assign a different probability to an outcome than the rest of the market. Hertz is mostly trading and speculation right now. But two other examples I found intriguing:
1. Look up the timeline of events with Corona.
Late January: millions of Chinese are put in quarantine.
Mid February: Apple gives a warning about not meeting guidances.
Few days later: Markets reach all-time highs despite the fact that the most-valuable company in the world just told everybody that the supply chain disruption in China is real.
That was a good opportunity to go short or buy put options. And I actually did and made a small fortune.
2. Wirecard. The information about the fraud were all known, but the general opinion didn’t price that in (of course, the short sellers did). You could’ve made a killing with that -98% decline in their stock within a week. I missed this opportunity.
But both of these events showed me that there are crazy inefficiencies once in a while that can be exploited (obviously with some chance of being wrong, but that’s part of the game and a question of risk management).
1. Look up the timeline of events with Corona.
Late January: millions of Chinese are put in quarantine.
Mid February: Apple gives a warning about not meeting guidances.
Few days later: Markets reach all-time highs despite the fact that the most-valuable company in the world just told everybody that the supply chain disruption in China is real.
That was a good opportunity to go short or buy put options. And I actually did and made a small fortune.
2. Wirecard. The information about the fraud were all known, but the general opinion didn’t price that in (of course, the short sellers did). You could’ve made a killing with that -98% decline in their stock within a week. I missed this opportunity.
But both of these events showed me that there are crazy inefficiencies once in a while that can be exploited (obviously with some chance of being wrong, but that’s part of the game and a question of risk management).