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2024-09-17 08:49:13

ed on Nostr: The no-free lunch theorem is fascinating, and basically says "you have to work to get ...

The no-free lunch theorem is fascinating, and basically says "you have to work to get results" https://en.wikipedia.org/wiki/No_free_lunch_theorem

Apply it to markets and returns from momentum funds (as an optimisation process) you can see why people who invest their life into these strategies will struggle in the long term, as the Law of Large Numbers https://en.wikipedia.org/wiki/Law_of_large_numbers kicks in. The question is, how long do they have?

NB: you can spot a free-lunch theorem issue by asking "what work has to be done?" and "how much does that work cost me?". If the cost is zero, the risk is high. If the cost is high, the risk should be low.
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