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Comment by anm89 | Hacker News Reader

>Note that nobody has any idea where equity prices will be in one day, never mind one year or ten years' time

This is more or less true.

> As a retail investor (i.e. not extremely rich), you can't gain any advantage over the market that overcomes your transaction costs.

This is patently absurd. It's an easily falsifiable statement which is a rare feat in economics. On average, the the average retail investor will not beat the market. That does not mean they can't. All you need to have is literally any correct thesis and the ability to execute on it and you will have an advantage over "the market". I'm not trivializing this, it's not an easy feat, but markets are absolutely full of inefficiencies, and it's obviously not impossible to do better than the average case. This is a complete misunderstanding of the efficient markets hypothesis.

BTW, I'm not recommending that anyone try to time markets.

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I’d like to offer a source to back up my statement about transaction costs: A Random Walk Down Wall Street.

It’s true that even a retail investor can research and implement a strategy that beats the market average. However, their transaction cost - which includes the cost of their time doing research - will, over a large number of tries, eat up this advantage.

Said another way: could _anyone_ reliably beat the market by enough to pay off the costs they expended coming up with their unique winning strategy? Not just you - I am sure you are very smart - but any typical retail investor.

I could randomly select any task and then randomly select a typical retail investor and they'd be unlikely to accomplish it. That doesn't mean nobody should attempt it.

Not that I'm advocating trying to time the market, but I don't buy the "the average person can't do it so you shouldn't try" argument.

Half of people do better than average...

But not consistently.

Average as in mean? I think you might have meant median.

What does it mean for a market to have inefficiencies?

Seriousness of wuhan virus was known since end of January, but stock market ignored it completely, raging into all-time highs till February 20th.

Regular person could absolutely see it and be prepared. Even today market still doesn’t price in Italy-style or China-style lockdowns.

Wuhan virus mostly affects the elderly who are largely out of the workforce. It's not the virus that's disrupting markets it's the response, which no, regular people could not see coming. Even experts are commenting on how well China did to respond in such a drastic fashion. Plenty of countries still haven't done anything large scale to address it.

This is called hindsight bias

Claiming this after the fact could represent hindsight bias.

It does not change the fact that the market had an inefficiency in pricing this information into many assets two weeks ago.

If someone bought or sold assets based on a strategy based on this belief (and certainly at least some people did), then they exploited that perceived inefficiency correctly without hindsight.

In this usage it's more like saying that information was "inefficiently" or not fully priced or not fully accurately priced. I'm not arguing that the market mechanism is inefficient, but that the market convenes on prices which in the short term fail to account for some underlying reality.

In an ideal world, markets should be perfectly efficient (near immediate) at exposing things which are misvalued because people can make money if they understand some fact that the market doesn't and then that fact will be accounted for.

In reality they just converge on the average of beliefs weighted by how confident a given actor is for a given belief and how much money they have to put behind the belief, and people are extremely imperfect, especially when it comes to predicting the outcomes of complex systems. Given this, there exist all sorts off "inefficiencies", or times when the current state of the market fails to accurately account for some underlying reality which leaves an exploitable opportunity to buy or sell a mispriced asset.

There are actions that stop people behaving in a way they would in a perfect market. Laws prohibiting certain sales, taxes affecting companies and investors, imperfect information disclosure, are a few of the big ones.

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