That assumes some of this isn't baked into the price already. But yes, if you think the market hasn't factored in any one or more of these potential actions, then buying the stock would be the most logical way to profit...
And if you believe that, I have a bridge you might be interested in buying.
Maybe everyone assumes that the market has already factored it all in so they don't bother buying so it isn't factored in because the increased demand never arose. Maybe I'm just out of sync, and as other people start to notice this they'll start buying and it'll turn back around and then the market will have factored these things in because lots of people assume it hasn't.
Most recently (13 months ago - this isn't a regular thing), a British pasty retail outfit named Greggs. The news said things were looking good, I could see their stores were busy, I bought some shares, they're up about 40% in 13 months (which is unusually good, I freely admit, and I certainly didn't expect that). That's really all I do, and it seems to work out (and it really is rare when I do; typically, I just dump all my pennies into index funds - easily 80% of my pennies are in index funds). I think some of the big name successful investors do something similar, but obviously on a much grander and more informed scale. Plus the British house-builders. Every time the UK government announces another plan to help young people get fifty year mortgages, it's time to buy some more of them! They will crash eventually, I'm sure :(
I think that way about my index funds too. But then it's impossible to know the reason for the price rise. Maybe it's because of millions of other guys like me who read the same articles, came to the same conclusion as me, and put their money in too.
The odds of that happening by chance are <50% but still quite high, about 6-7% depending on exactly how you reckon it. So one person in 15 will get this result purely by chance.
There are studies that show that very few (like <<1%) professional money managers can beat the market consistently. You may well be one of those rare people, in which case you could make billions on Wall Street. But until you amass a much longer track record than you have, the odds are much higher that you are just one of the lucky ones. There are a lot more lucky people out there than most people realize.
> it has nothing to do with my point
which was:
> A professional manager has to make a lot of decisions and still has to invest money even if they don't have any insightful ideas.
Implying that Eli's talents could not be deployed on Wall Street because he could not operate under the constraints on which professional money managers have to operate. But that's not true.
Professionals do have a much harder job of it. As Simon says, they can't sit on their hands for 18 months like I do. I expect if they parked most of the money in an index fund, their customers would start asking why they're paying managed fund rates for an index fund.
Might as well go on the record here, and come back in a year to see how I did. I'm considering UK pizza chains and the like; as the UK gets poorer, and people have less money to spend, the money that used to go on eating out drifts downwards into takeaway pizza and the like. All the signs are that the people of the UK are going to have less money and be faced with higher prices, so I'll look for a pizza chain or similar to invest in.
The monkey is giving even weight to each option rather than weighting according to risk. The monkey is picking a riskier portfolio than an index fund, and in compensation for accepting greater downside risk will have greater average returns.
Markets are subtle like that =)
Of course, the monkey is likely to attribute the difference to skill rather than risk...
In your scenario, if the index fund is properly designed to capture the risk of the "market" as you have defined it, a monkey has equal chance of performing better or worse than the index fund and the average monkey (or an average of a large enough set of monkeys) will perform with the index fund. Certainly, though, if your index fund is not designed to be reflective of the market, but of some subset, then it will carry different risk, but not necessarily less risk. However, a monkey randomly picking stocks from a pool will not, on average, outperform the average return of that pool of stocks.
I used to assume that if I read it in the news, it was all priced in and there was no point in me buying, but I noticed that often, it wasn't. Maybe I just got lucky and I miss the news reports on the companies that subsequently crash.
For example if you were closely following video game enthusiast press you may have found out a lot about Nintendo's mobile game plans much sooner than more typical investors which may only read newspapers such as the Financial Times and WSJ, which devote limited column inches to the activities of video game companies.