During discussion about things where you had strong opinions and then changed your mind, someone mentioned EMH. Do you believe in EMH and if so is it strong or weak version?
I used to believe EMH but not strongly. The pandemic changed my view because I managed to invest some money when the stock market dived and was clearly influenced by overly pessimistic view of the impact of covid. Some might argue that the market reacted to the irrational government measures, so it is not that the case that the market was mistaken. I still think that investors were equally irrationally pessimistic. I reject the view that this is a hindsight and I was merely lucky. I am not big expert and I did not possess any proprietary information. I had the same information as everybody else, I just didn't let my emotions take over me. This is further confirmed that even today when all the events have passed exactly as predicted, majority of people still maintain their mistaken views that covid was very dangerous to young and non-risk population.
It is the only time when I saw the rest of the society to be so wrong in their views and clearly this was my once-a-lifetime chance. I haven't see any other opportunities for easy money so far but I think that people who are experts in their fields and investors might have been able to find more opportunities.
One of them was found by Michael Burry who definitely saw that the 2008 financial crisis was coming. He wasn't just lucky because he had read and analysed all the documents and had to create special investment instruments to profit for it. In this way, it wasn't easily accessible by laypersons like me who have no time or understanding about investment. Again, most professionals were blinded by collective frenzy.
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Notes -
Great. Now do it 100 more times over the course of your life without blowing up and losing everything on a bad bet.
More seriously, you should never forget that YOU (and anyone else) IS the market. By making your bet just so, you inserted into the market your prediction that the Covid economy would rebound (or what-have-you), thus helping the market update it's information slightly in the 'correct' direction, and you were rewarded quite well for it.
So what EMH is saying isn't that there's literally no way you can beat the market. There are times when you may actually have special insights or particular information that hasn't disseminated to the larger population and by trading on this info you are helping make the market more efficient, and getting to profit for it. This is the process that actually makes the markets, in aggregate, more efficient than any one person would be alone.
So in my view, the only real key to 'winning' against markets is being aware of when you're actually a first mover who has information that has not been 'priced in,' vs when you're just reacting as part of the crowd to information that the market already reflects.
For example, back in Bitcoin's early days I made some highly profitable trades on Coinbase because very few people even knew what Bitcoin was, and one of the easiest things to predict is "as more people become aware of Bitcoin, demand will increase and thus the price will increase." So it was easy for me to see events that would raise Bitcoin's profile and expect to see the price go up in response.
Easy-Peasy when the information asymetry is THAT large. But that's way less possible now that Bitcoin is well known across the board.
Even trickier: your special insights have to overcome any countervailing information you lack.
For the first stock I picked, I was a customer who saw the high quality of an otherwise-flailing company's upcoming product, I beat the market there, and I saw my investment quadruple.
For the second, I was a customer who saw the high quality of another company's product ... but I didn't see the high cost that was delivering that product at a loss. In the end I just felt lucky that someone more competent at cost-reduction bought them out of bankruptcy, so I only lost my investment rather than the product I liked. Also I picked these stocks in parallel rather than serial, which was a valuable lesson in diversification and eventually pushed my IRAs etc. towards index funds rather than more yuppie-lotto-tickets.
The point is that I wasn't a savvy investor for that first stock, either, I was a lucky one. I had the same information and the same ignorance in both cases, it just turned out that the ignorance only bit me once. If it hadn't, I might have come away thinking I was savvy...
Right, but somebody out there presumably had the missing info you lacked and may have traded on it, which would have nudged the price towards a 'sane' level.
And indeed, I'd guess that opening up a position on it does incentivize you to start seeking out information about the company so as to better understand your risks.
Obviously everyone's somewhat exposed to the black-swan type risks, where no matter how much info you possess you still get sideswiped because of something that wasn't really even part of the calculus.
Yeah, in a sense these are the 'free rider' options, you're not really contributing information to the market, you're just placing a broad bet that everyone else will keep the market updated and operational since you're just holding for the long term.
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