It should be noted that while markets may be mostly efficient, I do not think anyone is claiming they are completely efficient.
If there are price discrepancies/anomalies, they could be exploited, at least some of the time. It could be that Medallion can find some and exploit them, say, 55% of the time. But over a large volume of transactions.
Casinos make huge profits by exploit small house edges in volume:
* https://wizardofodds.com/gambling/house-edge/
There's a reason why Medallion has been closed for years: the (possible) market inefficiency exploits they're using may not scale.
This is false. Grandparent is specifically claiming that markets are completely efficient. Here is a direct quote: "Whether you're an individual trader or a billionaire hedge fund manager, active strategies lose out to passive ones in the long run."
In addition, many academics are also making this same ludicrous claim.
Yes, you have a market where participants trade against each other, and you discover that the average participant in the market does not "beat the market". That should be obvious. The question in dispute is whether _anyone_ can beat the market, and there's a mountain of evidence that certain people/funds beat the market year after year.
This is a problem for retail investors. Studies such as this one [1] have shown that the past performance of an actively managed fund does not predict its future returns. In other words, while there are certainly actively managed funds that beat the market in some years, a retail investor picking a mutual fund based on past performance is likely to be disappointed.
So how do you pick the fund that will give you high returns? Turns out this is exactly the same problem with individual stock picking, but instead of trying to pick winning stocks on the stock market, you are trying to pick winning managers in the mutual fund business. And your success in doing that ultimately comes down to chance.
[1] https://insights.som.yale.edu/insights/does-mutual-fund-s-pa...
We are in 100% agreement.
I only wanted to correct the misinformation spread by grandparent who claimed that nobody can beat the market.
The Medallion fund is a whole other kettle of fish. Medallion uses extremely sophisticated models which took Jim Simons and his team of math wizards more than a decade to figure out, using vast amounts of historical data and computation. The fact that nobody else is replicating their performance should tell you just how difficult it is.
In 2019, 71% of actively managed funds lagged behind their benchmark according to the S&P. In 2020, it was "just" 57% [2]. Meanwhile, 70% of active funds have been liquidated the last 20 years. There are of course years where actively managed funds are the winners, but over time, actively managed funds tend toward the mean, either lagging or matching the S&P 500.
[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3197185
[2] https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-y...