In a more or less zero sum game there are both winners and losers. Maybe not an equal distribution. Probably a skewed distribution. But there are winners.
1) You suffer very high transaction costs as an institutional investor. Think of each trade you make at your discount brokerage like a hand of blackjack. There are both winners and losers, but in the long run Charles Schwab is going to come out ahead. You don't just need to be right 50.1% of the time, but far more often to pay the house their cut.
2) Here are some of the people that are winners. You will note that "random guy in a home office in Ypsilanti who thinks he knows better" is not likely to be right more than 50% of the time because he is across the table from:
- The company itself, repurchasing its own stock when it believes based on inside information that its shares are undervalued (this is legal, although regulated and disclosed after the fact)
- Executives, selling their shares when they believe based on inside information that they are overvalued and buying when they believe the shares are undervalued (also legal, also somewhat regulated and disclosed too late for you to know it's affecting your transaction price)
- people with undisclosed inside information for which regulators do not have the evidence or the resources to establish a case
- high frequency traders, who trade hundreds of times a second and put out "trip line" single lot bids and asks just to feel out other market participants, move the market against those participants, and then fill the orders at a less favorable price to the counterparty
- strategic investors who can take large volumes of stock and use it to earn an economic return far beyond what a small shareholder can - consortia, JVs, M&A proposals, activist investors
- institutions with the securities sitting on their balance sheet (dealers) or who have access to the security to become your counterparty through dark pools (brokers)
- well connected institutional investors, who may not have "inside information" in the SEC sense of the term but golf with the CFO and call around to middle managers of the company and competitors to stay better connected to the industry than the Motley Fools and Alpha Seekers.
Given all of these, why is it so hard to believe the giant corpus of evidence demonstrating that individual investors who take a more active role in their investments underperform those who do not?