Profitability despite lack of dumb money

I was wondering if traders on elite trader associate the profitability of their strategies to the presence of dumb money in the market at all. Do you see any future in trading if the attitude of the participants changes and it gets tougher to hunt down their capital?

Thanks

 

define "dumb money in the market".

 

I think there is a big misconception that trading is getting "harder". The groups at the forefront of technology will always be crushing the game. Edges change, you need to keep with the times.
Put a decent programmer with finance knowledge back in the 90's and he would crush. Put a guy who could graph charts and create scanners back in the 60's and he would crush. In 100 years, today's edges will be gone and there will be new edges to exploit.

Look at the evolution of poker. Put me infront of Doyle Brunson or Johnny Chan at the WSOP final table (1980-2000 era) and I would sweep. Now that poker is some what solved(top players sticking to a quasi GTO style),more advanced games start to become more popular (omaha) where you can exploit edges. In trading there will always be new products coming up (VIX, Varswaps, CDS, ETF's, MBS, etc..) and if you are at the forefront, you will sweep.

 

thanks for the explanation

 

anyone who achieves worse reward/risk metrics Vs buy and hold. Basically, wasting time to achieve subpar Vs the passive inaction

 

Well, i would applause that, if the greed & fear, would be gone from mankind, but, i don't see that happening soon.

Except they manage successfuly to implant those cortex chips, that would create a synergy on thou with AI, but, when that will happen is unsure.

After all, shadow banking products, all the time, shows up in the end of each cycle, where you can see our nature at it's best, where the dumb money makes it's ,,final stand''. ( )

Baby boomers have seen few of those, millenials as well, Z generation now is fammiliar with cryptos and it's Eiffel Towers in charts ( most likely just a tiny part of them ),

rational person would learn, but,

there's tons and tons of baby boomers and millenials, that got destroyed by that, again & again & again, because of greed & fear.

 

So, "lack of dumb money in the market" means you trade in Lake Wobegon? Where all the traders are above average?

Yeah. That'd be a tough one, alright...

 

If you have worse risk/reward than buy and hold but you are -100% correlated to buy and hold your overall portfolio performance would be better than buy and hold.

 

In any activity that requires an above average level of education, you are condamned to lifetime learning. Knowledge is continuously changing (becoming more complex and more demanding) and the number of people that cannot follow anymore will always increase as this lifetime learning will ask more and more from people.

 

1. There will always be some "dumb money" in the market. Bag-holders can change over time. Are the folks jumping into factor investing, passive ETFs and AI strategies "smart money" closing off arbitrages and exploiting/eroding known edges, or "dumb money" herding into fads, chasing performance, and ceasing to compete for some edges (e.g. old fashioned stockpicking) in favor of lower-effort strategies?

2. There will always be some smart money that's willing to lose. Producers and consumers of ags and metals trade in futures to offset price risk, not to bet on direction. Likewise, equity investors use options and futures to hedge various risks. These activities may cost them money in the end but it's no different than buying insurance.

3. As long as some players are trading with much more capital (hundreds or thousands of times what you or I have) and need to move this capital in and out of positions, I don't see how they can avoid creating trends and the typical price action footprints and patterns, which small fry can observe and follow. They can use algos to break up and randomize their orders, or use dark pools etc. but there's a limit to how effective these measures can be, and how much effort it makes sense to invest in them. At the end of the day and in principle, you or I can always "trade inside" someone moving hundreds of millions or billions. For whales, it's a cost that must be paid just as you or I have to pay the spread. The flows involved are immense and you only need to extract a few hundred K per year.