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Re:Why I don't trade stocks and (probably) neither should you by yummyfajitas on Monday December 02, 2013 @10:16AM (#6834113)
The EMH does not assert that people are rational. The EMH can be true even if every single person is irrational.

http://en.wikipedia.org/wiki/Efficient-market_hypothesis

How it implies there is a strategy to beat the market? Simple. Suppose you have knowledge (e.g., the next iPhone causes cancer) that the market has not incorporated. You can use that knowledge to trade since the people not using that information will give you favorable prices (in this case by shorting AAPL).

Ultimately the problem with the EMH is the name. It's a fairly technical result that most people don't understand. People hear "Efficient Markets Hypothesis", they think it means "markets are magic fluffy bunnies that protect puppies from twisted stomachs and cure inequality", and argue against that.

Re:Why I don't trade stocks and (probably) neither should you by natural219 on Monday December 02, 2013 @10:50AM (#6834352)
I'm still confused as to what your ultimate point is. Are you saying that nobody has ever made a bet like that before? I made 4x on TSLA earlier this year. I don't claim to have refuted the Efficient Market Hypothesis, I just saw a situation where most institutional investors had a wrong idea and I thought I could beat them.

You seem to think that "market is sometimes wrong" somehow implies "you can always beat the market". That's not what we're saying. We are saying the market is clearly wrong often, so there exists some space for speculation arbitrage.

Re:Why I don't trade stocks and (probably) neither should you by onebaddude on Monday December 02, 2013 @11:32AM (#6834634)
>"I made 4x on TSLA earlier this year"

This implies that you made the round trip (ie bought and sold). If not, you've made exactly zero.

So what was it that you saw, that institutional investors missed, that caused you to buy? What changed with the company's prospects in the past year that caused you to sell recently, and book your profit?

Otherwise, you haven't "beaten" anyone.

Re:Why I don't trade stocks and (probably) neither should you by natural219 on Monday December 02, 2013 @01:22PM (#6835391)
Yes, I bought TSLA options when the stock was at $30 and sold them for a 4x return. It grew to many more times that, so I could have gotten more.

"So what was it that you saw, that institutional investors missed, that caused you to buy?"

At the time, there was a large distrust in the financial community that Tesla had the production capacity to meet its Q42012 sales goals (I believe it was between 3-5k Model Ss, they ended up selling 6k). It further followed that Tesla failing to meet its sales goals would undermine investor confidence in the company and squeeze TSLA's operating capital in the coming 1-2 year period.

I disagreed with both hypotheses. The funny thing is, my strategy wasn't even smart. I know nothing about Tesla's production capabilities, what the bottlenecks were, or if they were likely to succeed. I assume that information had been priced into the market. Essentially, I bet on Elon Musk. I don't know what the bottlenecks were, I saw the Model S and shit my pants and said "This is awesome" and then I bought options.

I really only have one point to make, which is that if you think TSLA going from $30 to $180 / share in less than a year is a completely random, unguessable market move, well, I don't know what to tell you. It's not to me.

tldr; http://ycombinator.com/munger.html

(just kidding, that one is longer)

Re:Why I don't trade stocks and (probably) neither should you by evanmoran on Monday December 02, 2013 @05:35PM (#6837089)
This tldr is an extremely interesting essay on wealth, business, and stocks. It is ridiculously long, but takes you amazing places. Definitely worth reading!
Re:Why I don't trade stocks and (probably) neither should you by dennisgorelik on Monday December 02, 2013 @07:41PM (#6837719)
Re:Why I don't trade stocks and (probably) neither should you by john_b on Monday December 02, 2013 @12:02PM (#6834821)
> "Suppose you have knowledge (e.g., the next iPhone causes cancer) that the market has not incorporated."

The EMH is based on the assumption that prices perfectly reflect the available information on the underlying. This is mentioned in the second paragraph of the Wikipedia article you quoted. You can't invoke the EMH as a model of the market and then violate one of its core assumptions when defending it.

Re:Why I don't trade stocks and (probably) neither should you by yummyfajitas on Tuesday December 03, 2013 @04:45AM (#6839435)
Please try to follow the logic rather than just the talking points. I'm showing jbooth how (not EMH) => exists awesome trading strategy.