do you guys still think you have an edge?

I’m just curious… when you guys trade do you think about who is on the other side of your trades?
It could be high frequency firms, passive ETFs, mutual funds, hedge funds, a few individual investors and some insiders. Which group are you winning against?

Do they not know the same things you know? I’m just curious where do you guys think your edge comes from. Or are these edges all public information now?

That is a great question!!! For now I stay because it has been working.

But also, I look at the news (and yes) at the forum. And I have one question: why would I think it is a RATIONAL market? There is clearly a difference of opinion on everything in the forum and we cannot all be right.

That is not to say that it may not be getting more rational somehow: e.g., machine learning or very smart hedge fund managers.

Like I say: good question with no clear answers on my part.

Edit. Recent opinion of one professional regarding another professional’s opinion on the P123 forum. I will note that this information is being discuss with some consideration as to whether to get out of the market or not. So the market could be affected by these participants (no matter who might be right). And they have access to the same information.

What is rational about (most of) the market?

Makes the argument that some of the market inefficiency MAY BE behavioral.


I don’t care who or what is on the other side of the trade. Trades need to occur or there is no market. Everyone thinks they have an edge or they wouldn’t do it. The hope is that our trading systems are the edge and that is not public info. Mind you the data used in the trading system is, it has to be.

So which of these groups do you think is the fish at the table? Mutual funds?

My edge is closing in on zero. It decays at a rate of about 30 bps per year, so I have a several years left. But at some point (soon) the juice will not be worth the squeeze, unless I can get some juicier fruit.

I can actually answer the question of “who do I think is on the other end of my trade.”

Today I sold NXGN and LMB and bought TGA, CPIX, and SPNS.

For NXGN, the most likely answer is an institution, and of the institutions that own NXGN, the most shares are owned by Brown Capital Management.
For LMB, the most likely answer is an insider (insiders own 45% of the stock). The second most likely answer is an institution, and of the institutions that own shares, the most are owned by, wait for it, the State of New Jersey Common Pension Fund.
For TGA, the most likely answer is “other,” which means not an institution and not a mutual fund and not an insider. I.e. market makers and individual investors. Or maybe it’s Canadians; the data I have doesn’t give any insider ownership at all because it’s a Canadian company.
For CPIX, the insiders own the plurality of shares, just like for LMB.
And for SPNS, it’s “others,” hands down, who own 88% of the company’s shares! But I think that’s because the data I have only covers US owners, and SPNS is based in Israel. Maybe some Israeli institutions or insiders own a lot of shares in SPNS.

As for whether I still have an edge, well, we may be in 1999 revisited, when expensive stocks had a huge advantage over cheap ones. Then the edge came back.

Yuval, I might actually be your dumb money. Still have NXGN as a buy.

Have also been holder of SPNS for a while (not selling yet though, so luckily I’m not on the other side of that one). :wink:

I’m thinking the others listed must be in a smaller universe than I utilize, so can’t comment there.

Oh, I only sold a few shares. I still have a lot of NXGN in my account. Ditto with LMB.

Information and Knowledge is presumably universal. Variety in interpretation and use of information is infinite.

You won’t lose your edge unless you choose to forfeit it.

“Information and knowledge is presumable universal.” That’s a very questionable presumption for the game we are playing. Before database providers started cleaning, normalizing, computing and selling fundamental data for 5000 US stocks every day, would you have made the same remark after the first subscriber?

If history in financial markets has shown anything, it’s that nothing works forever. Take a look around, there’s a reason alt. data and speed is of such interest to market participants.

Moreover, if anything, the Designer model feature has shown that most of us are losers and the net effect of all p123 activity is negative. P123 is a technology play vs the cost of said technology. As soon as the technological abilities and information sources become common or the cost to use that technology outweighs its benefits, the edge never returns. How many ETFs offer the same returns with no work and better tax treatment than what is offered today with P123?

Perhaps I’m wrong, but if I am it’s not because the totality of the data doesn’t agree with this assessment. I like P123 and am grateful for what it has provided, but the evidence simply isn’t there that the edge has remained. Many of us are probably hoping that Marco et al will release something new soon to help create additional edge. Those who aren’t, are hoping what they have now will work for some indeterminate amount of time. That last day will eventually come and you won’t know until well after it as has passed.

Do you think the majority of public institutions/hedge funds religiously backtest OR have as in depth backtesting capabilities? I think ETFs are the ‘fishiest’ at the table since they buy and sell everything like a random monkey. For example some ETFs would buy Beyond Meat because they buy everything. Yet they are outperforming active investors. It’s a conundrum.

I think some pros can speak to this more than I can but mutual funds cannot be entirely rational either, I think:

  1. It may be worth stating again that liquidity issues prevent the purchase of micro-caps and presumably some small caps. Well know.

  2. Can institutions buy stocks less than $5? I could be wrong but I have heard they cannot sometimes. Some may know the details on this.

  3. For practical reasons they cannot move in and out of stocks as quickly as I do. So they are not buying or not selling when it would be more rational to do so.

  4. They cannot concentrate on a few stocks with the best prospects. Not to the degree that I do anyway. They cannot focus on the 5, 10,…25 stocks that are most likely to do well.

  5. they cannot concentrate on a small number of stocks and they also have to diversify across industries (that may have less potential) to keep volatility down.

Not to mention that they may be closet indexers.

So maybe not “fish” at the table but they cannot be entirely rational either.

Between the ETFs, Mutual Funds, Retail Investors and the diverse opinions (that cannot all be correct) at P123, it is hard to call the market entirely rational.

According to O’Shaughnessy excess returns come from taking advantage of: Behavioral inefficiencies, informational asymmetry, better analysis and technical (trading better).

We all seem to agree that there is not much informational asymmetry anymore.

I honestly do not know but maybe there is some room for debate on the other sources of excess returns. Or the market may be efficient. I do not entirely discount this possibility. The Designer Models are a better indication for determining this than a few member’s anecdotal reports.


Vanguard, Dimensional Fund Advisors, AQR, Renaissance, Citadel, Two Sigma, WorldQuant, PDT, every pension fund has money to this space, etc. The list goes on and on and so does total AUM and profits for the collective group.

It’s not like the old days where everyone didn’t have computers to come up with a single formula and then apply it to every stock. If you have data that shows what I said is wrong, please I’d love to see it. I’m just saying you don’t need the majority of hedge funds or institutions to do something to remove the edge. You just need enough participants to make it go away and become just another “risk” factor that can be purchased for less than 50bps and have taxes like an index fund.

@korr123 I’m with you with, bruh. Doomsday preppers unite!

While many of us do get around efficiency by focusing on small-caps, I find that impact, slippage, and transaction costs typically more than negate any added edge. The way I try to get around some decay is by using special factor classes that tell me how efficiently priced the other factors are likely to be.

And, no, I won’t share how it works.

I’m speaking for myself here, not for P123, but I’ll tell you where I think MY edge (and I’ve done OK, with a CAGR of 34% since I started using P123’s ranking systems in late 2015) comes from.

  1. Ranking systems. Maybe a few large institutions use ranking systems, but most don’t. I think they’re the most powerful tool in P123’s arsenal.
  2. I examine every stock I buy from every conceivable angle, using over sixty factors in my ranking system. This dramatically reduces risk. It’s the best way to fulfill Warren Buffett’s number-one rule.
  3. I use factors that very few others use and even a few that nobody else has thought of. Of course, I research them rigorously first.
  4. I research, research, research. Every day I research. I research accounting principles and practices, backtesting approaches, portfolio optimization, probability, statistics. Some of the research is carried out through backtesting, and some through reading outside sources.
  5. I focus on microcaps and small caps, buying a lot of stocks that are usually ignored by the big guys. They’re riskier but more respondent to fundamental analysis, in my opinion (I know others differ with me).

Once again, I’m not advocating my approach, I’m just sharing where I think my edge comes from. I might, of course, be wrong, and my approach won’t work for everybody (it’s hugely labor intensive).

There’s an investor I follow whose performance is better than mine. The only things his approach has in common with mine are #4 and #5. He’s a discretionary rather than an automatic investor, and he’s brilliant, and I have no doubt he has an edge. Perhaps the most important thing is to find your own edge, and not to assume that you can have an edge without working very hard at it.

As I said, knowledge and information are universal (didn’t understand arguments in opposition; how could this not be obvious).

Interpretations are infinite.

Yuval interpreted the same information available to everyone in his way, so he retains his edge.

Where is the controversy. To me, this seems pretty clear.

Uh, yeah. As long as you pay SP500 and perhaps P123. Some do not have access to what we have.

An example of data we do not get is Starmine data. This would be categorized by some as “Analytics.” Fewer people have this (not us).

Alternative data has been discussed above (e.g., satellite data). Rare, perhaps processed by (and available to) only one institution.

Marc, I do not understand how you could say (or not understand) that information is not universal and that basically, all information has a cost.

What is “obvious?”

Or: if all data is universal I have access to it.

I do not have access to Starmine data.

Therefore, my assumption that all data is universal must not be correct.

reductio ad absurdum (indirect proof)


Marine Corps Doctrine on warfighting teaches all ranks that knowledge and informational asymmetry is desired and to avoid battle when the advantage is not clear. MCDP 1 is the first document on the Commandant’s required reading list, read by privates and lieutenants alike.

This concept is burned into my brain like a cyst. So, no, the idea that knowledge and information is universal is not obvious to me.

To wax philosophic on y’all, universal knowledge is a Platonic ideal. Aristotle throughly rejected Platonic epistemology. To make things simple, Platonic epistemology is based on intuition and gave rise to religious thinking. Aristotlean epistemology is based on observations and gave rise to scientific thinking. Obviously, that battle is still playing out in the real world. While engaging one’s intuition can be a powerful tool, when it comes to money, I can’t bring myself to trust a faith.

absolutly, if you do not make it here, you will not make it anywhere :wink:

I answer this Question empirically: I beat the market big time, so I guess I have an Edge. As Long as this is the case.

Let’s say you’re playing poker or betting on horses, and you’re good at it. One way you can win is through information asymmetry. If you’re playing poker, place mirrors in strategic locations, mark cards. If you’re betting on horses, get secret information about what drugs the horses have been given.

The other way you can win is through developing a sound strategy based on the same information that everyone else has. If you’re playing poker, memorize the other players’ tells, calculate probabilities, bet unpredictably and aggressively, etc. If you’re betting on horses, cleverly calculate the odds and take into account all the factors that go into winning a race.

P123 is no good for the first way. That’s the province of companies like Renaissance Technologies. P123 is good for the second way. Which requires more work.