Here I summarise the financial market lessons imparted by Ed Thorp in his book “A man for all markets”. My first three sections cover his views on investing, risk and market inefficiencies. My last two sections describe the hedge fund strategies Dr Thorp employed as well as his views on hedge funds in general.
Read More
Professional investors are usually either skilled (informed) or incompetent (deluded), but can one actually demonstrate such skill or incompetence empirically?
Read More
Participants in financial markets are usually categorised as informed or uninformed. Here we expand this classification by including another group which we refer to as the foolish participants. Foolish traders actively transact at inefficient prices to their own detriment.
Read More
Consider a securities market where price-sensitive information is available only to participants who pay a fixed cost in money or effort. So only paid-up agents know the fair prices of securities. However, not all agents would be willing to pay for information. Some would argue that because there are enough informed market participants, ensuring that securities are correctly priced, why then incur the “unnecessary” cost of gathering information?
Read More
Even if we assume that all information is available to everyone at the same time at no cost it is still possible to outperform an “efficient market”, thus exposing a paradox in the “efficient market” definition.
Read More