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Comment by starpilot | Hacker News Reader

> Is this author suggesting that you couldn't have made money by shorting Enron stocks milliseconds after the scandal was made public?

Enron's collapse was 18 years ago. I suspect if this happened today, with today's trading environment, the answer to your question would be "yes." The algos today will parse an article, enter & exit a trade faster, than a human can read the headline.

> So buying stocks in companies with good financial health is not profitable?

That alone, probably not. You need to have an edge. If everyone else knows it's financial health clearly, then the price is already "bought up."

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This brings an interesting point regarding reproducibility in economics. It's possible for a paper to be legit and be good science, but the moment it's published it becomes irreproducible because other actors are going to use the published approach from now on and the balance in a game theoretic way is not the same. By publishing a paper you can change the thing you are studying.

This is what the author is talking about when he says "alpha decay." He tried to account for it with backtesting (so simulating a market that has no knowledge of these strategies) and the strategies still failed.

> That alone, probably not. You need to have an edge. If everyone else knows it's financial health clearly, then the price is already "bought up."

This is untrue. FAANG (all healtly companies) have been outperforming the S&P500 consistently. In fact, investing in FAANG is probably the "dumbest" smart play you can make. And, alas, you still come out on top.

Yes, and Enron was incredibly healthy too. Netflix has recently seen a downturn. The "health" of companies is not a constant. Can you predict when it will sour? Or are you certain that these companies will never fail? If so, why?

It’s well known black swan events are not predictable (see Nassim Taleb), but this doesn’t mean FAANG doesn’t, on average, outperform the S&P500.

A sound strategy would also hedge against black swan events — so some money might be in gold or jewels or something. But that’s beside the point.

No one got fired for buying IBM.

false

I think it's a bit of a stretch to say that FAANG stocks have "consistently" beaten the S&P 500. Most of the FAANG companies haven't even existed for long enough to draw meaningful conclusions from. The one that has (Apple) once underperformed the S&P 500 for 11 years from 1993 to 2004.

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