Excellent topic, a lot of great information and insights here.
A few questions.
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Does anybody know the distribution of active traders by size and level of sophistication (for luck of a better term)? For example, 50% of active traders by volume of trades are institutions and 50% are individual traders. Ideally, I'd like to see % of hedge funds, banks, pension funds, sovereign wealth funds, active investment funds, other institutions, rich individuals who trade by themselves, smaller sophisticated individual traders (e.g, use their own algos) and "shoeshine boys who give stock tips". This would give a better idea as to the odds of success for a relatively sophisticated active trader be it an individual or an institution. For example, if half of active investments by volume are made by "shoeshine boys", the chances of success are still not too bad for somebody who can outsmart them. If 90% of volume is professional/institutional, not so much.
-Related to previous question: quant/algo trading is becoming more popular. It requires access to complex and expensive data sources as well as expertise to process and make sense of them (e.g. big data technology, trading robots/algos, machine learning, etc). For example, quants use online sentiment data, geospatial data, credit card transaction data, etc, to understand how companies are doing before they release their financial reports. Given the investment and expertise required to do this,
aren't good quantitative traders more likely to beat the market, particularly while they compete against less sophisticated investors (as long as quants are in the minority)? Case in point: Renaissance Technologies, a secretive hedge fund run by PhDs, believed to be the most successful hedge fund
https://www.bloomberg.com/news/articles/2017-04-25/renaissance-mints-another-billionaire-with-two-more-on-the-cusp -Suppose there are sophisticated institutional investors which are in a good position to consistently beat the market (at least most of the time).
Can an individual active investor consistently outperform the market? For example, a genius math PhD who can create sophisticated trading algorithms and keep them a secret? Or does it require an institution with a group of people and deep pockets to buy data and infrastructure?
Note: I am using the terms "active investors" and "traders" interchangeably here, because the distinction is not very important IMO for the purpose of our discussion. Basically, i mean everybody who tries to beat the market using day trading, arbitrage, algo trading, stock picking, etc, etc.
Bonus material: a modern example of a "shoeshine boy who gives stock tips". Well, actually a millennial girl who travels the world and trades stocks online, including triple leveraged ETFs which she doesn't seem to understand very well, e.g. that they are not suitable for long term investing due to decay. Doing pretty well so far, she beat the S&P 500 last year by a few percentage points. What's going to happen when the market declines is a different question, though. Just watch the youtube video for lolz.
https://youtu.be/vk8v3hOT5iY