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Comment by erokar | Hacker News Reader

Markets are not rational, they exhibit crowd psychology and as such are more primitive and irrational than individual behavior. Quite a few professional traders, hedge funds and even retail traders consistently outperform the indexes. They are able to do this because they have recognized the fallacy of EMH and are able to exploit the market's irrationality.

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> Quite a few professional traders, hedge funds and even retail traders consistently outperform the indexes.

In any one year there are a number of them do, but SPIVA has shown that over the course of 5, 10, and 15 years that number gets smaller and smaller:

* https://us.spindices.com/spiva/#/

Also: just because the market is not 100% efficient, and some folks can find 'weaknesses', does not mean it is not mostly efficient.

* https://yourlogicalfallacyis.com/black-or-white

Not even Fama, whose is often credited for formulating the EMH, has said that it is 100:

* https://en.wikipedia.org/wiki/Eugene_Fama

Replying to myself on the SPIVA point (PDF):

> Over the 15-year period ending June 2019, 90% of large-cap, midcap and small-cap funds underperformed their benchmark S&P indices. In only one asset class, large value (80% underperformed), was the percentage of underperformers below 86%.

* https://www.advisorperspectives.com/articles/2019/11/18/the-...

I don't disagree with the point you're making, but I should point out that one reason some funds don't beat the S&P500 is because of the fees they charge, which are deducted from their performance. In reality, their actual gross performance is better than the S&P. However, the fact that the results are so close to the S&P's performance that the fees alone can push them below it supports your overarching point.

Further, in low-performance years, there is more of a headwind that must be overcome to even earn a return (from the investor's POV).

Investors who consistently beat the market are a small minority, and their existence does not disprove the EMH. Obviously the market isn't 100% efficient, but it's efficient enough that even most professionals can't beat it.

I'd imagine the utility stems from being the most efficient means of distributing resources, and if markets can be consistently beat for extended periods of time then that is evidence that a better way exists.

Admittedly that better way might simply be "markets, but only competent people are allowed to trade".

Although I do not believe the EMH myself, I think it's important to distinguish between rationality and efficiency. Markets are not rational is not the same thing as saying markets are not efficient.

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