Smart investors will always take money from the less smart
In an entertaining interview with the London School of Economics, Ray Dalio explains why it’s possible for investors to beat the market.
Here is an excerpt from the interview:
Host: “Many economists, as you probably know, argue that over the long-term you can’t beat the markets because all the information is rationally expressed in the price…”
Dalio: “That’s so stupid! It’s so stupid! Because that assumes that some people aren’t smarter than other people or some people don’t have a better way. It’s like a poker game. For the aggregate it’s like a poker game, zero sum okay.
The markets have alpha and beta. So beta is the return of an asset class. That’ll happen and has its intrinsic thing. But whether you can produce alpha becomes zero sum. So the fact that it’s zero sum means that in aggregation it can’t happen. But individually it can happen. It happens – right? Because smarter people will take money away from those who are less smart. It happens all the time.”
