This is a further misrepresentation of the efficient market hypothesis. The efficient market hypothesis states that the price agreed upon by the market is accurate to a risk-adjusted level, to the extent that it is not possible to consistently beat the returns of the market.
This is generally proven true by the fact that most funds fail to beat their benchmarks in any given year, and the more long term you start to look, the closer the number of funds that outperform their benchmarks gets to 0.
Page 9 of this document shows this quite conclusively: https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-y...
Anybody who "beats the market" on any given day could only achieve that by discovering an inefficiency in the markets decision making. The efficient market hypothesis doesn't say that this is impossible. It says that it's impossible to do this consistently, which is reflected quite accurately in the historical performance of mutual funds. I guess the theory is flawed in the sense that it doesn't define how long you have to beat the market for before you can be considered 'consistent' at it, but I'd consider the small number of funds that achieve this over any significant period as being within the error bars of luck.
EDIT: So one thing to consider is that markets are predictive. A "correct" interpretation is only correct if it can predict what will happen in the future. And because the future is not predictable (proof needed but whatever) there is no way to know which interpretation is "correct".
The same way fantastic tennis players can consistently outperform the rest of the competition, fantastic traders can certainly outperform others. Of course, in an ultra competitive environment, with a massive number of constant competitors, its very hard to retain a number one spot. Its also hard to predict markets because of the very fact that they're inefficient and irrational. There are so many active participants its hard to predict how they will react to available information.
Take 2008 for instance. There was public information demonstrating fatal weakness in the housing market, but it was neglected en masse. This makes it very hard to beat the market. Even if you're correct, the market could decide to ignore the facts, and you wouldn't be able to reap any alpha from your observation.
Sure, assuming every market participant has knowledge of the winning strategy, and the skills to employ it..which is a pretty big caveat.
By this logic why do some chess players beat others? Wouldn't they all simply adopt the same strategy?
If you play chess against someone, and you discover a winning strategy, and you play it repeatedly, they'll eventually discover your strategy and be able to counter you. Your opponents in the market are adaptive in this same way, so trying to always stay ahead is very hard. Some funds find some way (which I am not privy to) to succeed at this, and people still make boat loads of money as professional traders or quants, so there is reason to believe it is possible.
The fact that it is possible to have a very successful career in finance as a quant or trader also seems to me like evidence the efficient market hypothesis (taken in its strongest form, that markets are perfectly efficient) is false.
It's the opposite. Traders increase market efficiency up to a certain point. If traders didn't exist then markets couldn't be efficient in the first place. Liquidity problems would persist and cause large spreads between buy and sell prices.
But sure you could always define efficiency in an unattainable way by saying no matter how much you beat the market your streak could end down the line and the limited sample size means it doesn't prove anything.
And to me that's what efficient markets are. This unfalsifiable word game you can play where as long as the definition is flexible enough, you get to say the sentence "markets are efficient".
I think this question is hard to comprehend when you blow it up to this massive scale. Heres a simpler (and I claim) equivalent problem.
Imagine you're in a room with a friend. You're both tasked with estimating the price of a company. You both read through the companies 10Ks and whatever other information you can dig up. You read a bit more carefully than your friend, and detect an issue in the company's finances. Now you have alpha, and can develop a better estimate.
The market is this same scenario, but there are millions of folks playing the same game. That means its harder to find that undiscovered blip of insight, but that doesn't mean it doesn't lie in wait for the diligent. Just as there are still original thoughts, there are still original insights, and possessing them means, for a moment, you can beat the market.
Sure but the exception proves the rule. We don't have a whole generation of Warren Buffets, we only have one.
Be careful before holding up a single example as an exception to the rule. Some basic statistical analysis show there was a 30% chance the Red Baron, the most famous WW1 fighter pilot, was just lucky. And obviously his luck eventually ran out.
https://www.scientificamerican.com/article/news-bytes-red-ba...