OK, can someone explain this? Most people say that "you can't beat the market in the long term", "market is efficient", etc. So how can these people have done so well over more than 20 years??
My personal favorite is, "They trade on non-public information, and use a complex trade algorithm for the purposes of plausible deniability."
Another is, "They got lucky."
Another likely one is "The reporter did not calculate average annual return correctly."
One that I find dubious: "They actually are that good at investing."
For giggles: "They are using hedge funds to launder drug money."
I'm sure there are other ways to explain it, but that return just sounds way too good to be true.
I think they'll probably use a database that's "eventually consistent" ;-) I
But in order for markets to be efficient there needs to be lots of constant arbitrage, and anyone who pulls off an arbitrage trade makes a profit. So maybe the Medallion fund just does a lot of the arbitrage that makes markets so efficient.
Without cheating that may be true.
Let me illustrate: We'll assume that trading returns have a binary distribution. Traders win or lose with equal probability. This is not a great model, but it's good for making ballpark estimates, because it overestimates the odds of a track record like Renaissances.
RenTec's Medallion fund has not had a down year in the past 25. The odds of this are at most 1 in 33 million, using our binary model. Survivorship bias does not begin to explain this; there have not been anything resembling 33 million hedge funds over the course of history. I think 30000 hedge funds is a fairly generous estimate.
Exercise: Suppose Medallion's returns are at least a standard deviation above zero, every year. Calculate the odds of this happening.
I've been investing for almost a decade, was lucky enough to sit out the worst in 2008, and I haven't had a down year in 10 years myself. This outcome was mostly luck on my part.