A friend of mine that is well educated from the University of Chicago and works in the industry recently sent me a note on his realization on the markets. I'd like to solicit opinions, and then I'll share my response to him that I already sent. Just curious what others think. -- I've come to the conclusion that I don't know a thing about the financial markets. I have studied a lot in the ways of finance theory in the past year and a half, but as of late I've decided that all of that finance theory won't help you make money in the end. Why? It goes back to the efficient market hypothesis, the infamous theory that states that all available information is already priced into the market. Therefore, you only make money for having information that the rest of the market doesn't know (as I side note, I'd have to clarify that you could still be making money but this would be reward commensurate with the risk you are taking alongside the market - I'm taking risk-adjusted alpha here). We means that somewhere out there in the world, someone is already trading with the new-fangled technical indicator or fundamental indicator you just read out of that book you purchased for $80 at Borders. Somewhere out there in the world there are loads and loads of people who know the technical charts and patterns far, far better than you. Somewhere out there in the world there are people who have already done the free-cash flow valuation using a proprietary version with who knows what in there. Basically, a lot of the information is already priced in, and you are likely already late by the time you get there. Still yes there are anecdotes of people who daytrade for a living and on this one trade they got lucky and make xxx%. But I'm looking for persistence. I'm looking for edge. I'm looking for something I can step up to the plate with to take a swing, and take as many gosh-darned swings at it because I know when it hits, it's going to be big. I don't have that yet. What I do know is that I won't find it inside the halls of academia, or likely even in a book sitting in my collection. It's adverse selection. If it's lead, it's going to be all over the place. If it's the frickin' alchemist stone, then it'll be in Fort Knox. There are patterns out there, sure as there are reoccurring patterns in nature or human behavior. It's all human psychology in the end. I believe the efficient market hypothesis is a good Newtonian approximation, a scientific over-simplification. It's the subtleties where the money is to be made. These are unprecedented times. I watched as the world financial markets nearly took a dive. I watched the market swing at near double digit percentages daily. I watched an African-American president get elected as President of the United States. A couple weeks ago, I looked at a chart of the kurtosis of the Dow Jones Industrial Average using a three year rolling window, and it sure the hell didn't look normal (sometimes the kurtosis was up near the 9's - the portfolio optimization formulas I learned were all a lie!).