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.
What is your opinion about EMH?
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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.
That precisely is my understanding too. But why not play the market with the same attitude in every case? I saw a big issue of market going into the wrong direction without being an expert in this because it was so obvious. But many people are experts and they know about about multiple smaller cases where it makes sense to invest with smaller but sufficiently good returns. The fact that they help to correct the market and bring it back to equilibrium just means that you need to be an expert. Why make a theory that basically says – if you are not an expert, don't pay in the market and simply invest in index funds?
Just a thought: maybe investing has attracted too many non-experts that it becomes like a mass delusion that they all believe that they know how to beat a market and we need some warning for those people?
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