Surely this can't be right. If for the only reason that, if it were a sucker's bet, then most people wouldn't take it. Especially most 'informed/rational' actors. The vast majority of the players on Wall Street, we can assume, are informed and relatively rational. Yes, they may follow the herd - but that too is a rational exercise. If you are in a building and everybody is running for the exits, it is irrational to stand still and risk being trampled.
So, the mere fact that there are countless informed/rational actors seeking alpha and - quite frankly, many do capture it - would seem to me that statement is inaccurate.
If your argument is that the odds are long, well that is more nuanced view.
There are many traders that seek a small amount of alpha, with no leverage, and make a reasonable return annually - enough to support say 1 - 2 employees. But, there are many others that do the same with a larger capital base and capture enough to support larger organizations.
Seeking bets with long odds is, quite frequently, not a sucker's bet - because the mainstream view of that bet is that it is a sucker's bet. Mainstream adoption of that view, actually - non-intuitively - turns the bet into a prudent bet. The whole be greedy when everybody is fearful bit.
The same can be said of founders wanting to build the next Facebook - you might argue it is a sucker's bet, but the outcomes aren't as rare as it may seem.
People bet on slot machines too. Can you say, if it were a sucker's bet, most people wouldn't take it?
When I started writing I thought if I proved X was a stupid thing to do that people would stop doing X. I was wrong. - Bill James
For some measure of 'sucker-value', seeking alpha is a sucker's bet, or timing the market is a sucker's bet, or blackjack is a sucker's bet, or poker is a sucker's bet. But there are the few who can find an edge, and don't play when they don't.
A more nuanced point of view is that the market is efficient enough and perverse enough that it takes an unusual ability to find alpha, or time the market, or to pursue any strategy. So if you don't have those, then it's a sucker's bet.
As a thought experiment, consider what would happen if (nearly) everyone indexed. Anything outside the index would be super-cheap and illiquid, and the index would be expensive in comparison. In that case, non-indexers would outperform. (Efficient market theorists would of course argue it was an illiquidity and risk premium and the market is still efficient.)
In the real world, the market finds an equilibrium between indexers and non-indexers where some can generate alpha, enough to persuade a lot of people that they're alpha generating when they are just fooling themselves. It's really people's ability to rationalize and fool themselves that explains the persistence of alpha-seeking strategies, not their success.
Paradoxically, when dumb money acknowledges its limitations, it ceases to be dumb. - Warren Buffett
I agree with you that it's possible, but hard to outperform, but mostly for a different reason. Partly because the market is somewhat efficient and rational, but mostly because where and when it's irrational, it inherently mirrors the irrationality of the human participant in ways which almost everyone will struggle in vain to overcome.
> The market can remain irrational for longer you can remain solvent.
Yes, but can it remain solvent for as long as everybody can remain solvent? i.e. everyone that makes these "sucker" bets? No. Liquidity will dry up, because there is a big chunk of the market that takes these bets.
Surely this can't be right. If for the only reason that, if it were a sucker's bet, then most people wouldn't take it. Especially most 'informed/rational' actors. The vast majority of the players on Wall Street, we can assume, are informed and relatively rational. Yes, they may follow the herd - but that too is a rational exercise. If you are in a building and everybody is running for the exits, it is irrational to stand still and risk being trampled.
So, the mere fact that there are countless informed/rational actors seeking alpha and - quite frankly, many do capture it - would seem to me that statement is inaccurate.
If your argument is that the odds are long, well that is more nuanced view.
There are many traders that seek a small amount of alpha, with no leverage, and make a reasonable return annually - enough to support say 1 - 2 employees. But, there are many others that do the same with a larger capital base and capture enough to support larger organizations.
Seeking bets with long odds is, quite frequently, not a sucker's bet - because the mainstream view of that bet is that it is a sucker's bet. Mainstream adoption of that view, actually - non-intuitively - turns the bet into a prudent bet. The whole be greedy when everybody is fearful bit.
The same can be said of founders wanting to build the next Facebook - you might argue it is a sucker's bet, but the outcomes aren't as rare as it may seem.