interesting theory from Byrne but in my experience the market for "alpha" is just not efficient at all. The only signs of efficiency that I have found are within equity markets and the "pods" as you call them, but any efficiency they have found in more liquid markets like equities has not been extended to less liquid markets like fixed income which contradicts the thesis of alpha efficiency. the other issue here is the definition of alpha. I think of alpha as edge which is very different than outperforming a benchmark with less risk and low correlation. historically real alpha has come mostly from exploiting market inefficiencies like cross market arbitrage in the 80's and 90's. tying alpha to a benchmark is just superficial imho, alpha is purely a qualitative thing which i think you kinda argue towards the end of the article
Why is alpha once you attach it to a benchmark purely qualititative? The whole pods game is to quantify the piss out of extra risk/reward.
And I never actually like the term efficiency. My stance is there is no easy money. There's compensation for work which is really trading and trading ultimately is quasi arbitrage. Investing on opinions and what have you in widely liquid markets is pretty hard to outperform benchmarks.
Now as you get to less liquid markets you expect more inefficiency. Relationships/access etc.
Sorry I didn’t explain myself well. I’m saying alpha is a blunt concept. It started out as the error term in a linear regression that we’ve elevated to the status of precious commodity (sorry again I’m not trying to take a shot at your article). I’m saying that the concept of alpha is more accurately edge, and I think that is best explained qualitatively and backed up with numbers.
I generally agree with your stance on market efficiency, I just phrase the investing on opinions part differently. I consider market participants on a spectrum: Longer term investors are taking in general market and economic beta to get their returns that is one end with the liquidity providers/day traders who are providing liquidity without knowing it on the other side. There is a huge blob of risk that emanates from the economy and the market and all these participants carve up that blob and in the process opportunities for edge are created. I actually think efficiency and edge are closely linked. And I do think there can be edge in investing based on opinions, but it’s very hard and not stable. Buffett provides an interesting case to study. I think of it like we assume a coin flip is random but it’s not really, I could analyze the coin and determine it’s weight distribution is uneven and therefore would produce a higher percentage of heads or whatever.
“Munchies”
interesting theory from Byrne but in my experience the market for "alpha" is just not efficient at all. The only signs of efficiency that I have found are within equity markets and the "pods" as you call them, but any efficiency they have found in more liquid markets like equities has not been extended to less liquid markets like fixed income which contradicts the thesis of alpha efficiency. the other issue here is the definition of alpha. I think of alpha as edge which is very different than outperforming a benchmark with less risk and low correlation. historically real alpha has come mostly from exploiting market inefficiencies like cross market arbitrage in the 80's and 90's. tying alpha to a benchmark is just superficial imho, alpha is purely a qualitative thing which i think you kinda argue towards the end of the article
Why is alpha once you attach it to a benchmark purely qualititative? The whole pods game is to quantify the piss out of extra risk/reward.
And I never actually like the term efficiency. My stance is there is no easy money. There's compensation for work which is really trading and trading ultimately is quasi arbitrage. Investing on opinions and what have you in widely liquid markets is pretty hard to outperform benchmarks.
Now as you get to less liquid markets you expect more inefficiency. Relationships/access etc.
Sorry I didn’t explain myself well. I’m saying alpha is a blunt concept. It started out as the error term in a linear regression that we’ve elevated to the status of precious commodity (sorry again I’m not trying to take a shot at your article). I’m saying that the concept of alpha is more accurately edge, and I think that is best explained qualitatively and backed up with numbers.
I generally agree with your stance on market efficiency, I just phrase the investing on opinions part differently. I consider market participants on a spectrum: Longer term investors are taking in general market and economic beta to get their returns that is one end with the liquidity providers/day traders who are providing liquidity without knowing it on the other side. There is a huge blob of risk that emanates from the economy and the market and all these participants carve up that blob and in the process opportunities for edge are created. I actually think efficiency and edge are closely linked. And I do think there can be edge in investing based on opinions, but it’s very hard and not stable. Buffett provides an interesting case to study. I think of it like we assume a coin flip is random but it’s not really, I could analyze the coin and determine it’s weight distribution is uneven and therefore would produce a higher percentage of heads or whatever.
Or just fix the incentives: https://asoundinvestor.com/index.php/2022/10/31/a-petition-cancel-the-asset-based-fees/