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your argument relies on showing that a few famous people
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It absolutely does not, that is a very poor misreading of what I wrote, they are simply well-known examples of alpha generators who might be familiar to the layman. You should work on your reading comprehension, but I understand if you were rushed.
dero, saying 'there are two schools of thought' is a cop-out. Ibbotson and Chen did the definitive studies of hedge funds, using tens of thousands of data points, Positive alpha generation is predictive:
Ibbotson and Chen's academic paper on the topic of Hedge Funds--
http://papers.ssrn.com/sol3/papers.c...ract_id=733264
using Ibbotson's data for equity L/S funds only [Jan 1995- April 2006:
'L/S Hedge Funds create a <b>net alpha of 5.41 per year</b> [- that is net -], and overall return of 13.10%.'
All results are for dead + live funds, and do NOT include backfill data/bias. Alpha per HF strategy:
'Equity Neutral +1.94%
Fixed Inc Arb +3.91%
L/S Equity +5.41%.'
To avoid anyone's ingrained equity bias on this topic, simply use the Beta of 'the market', and also earn the 3.91% net alpha available in FI Arb funds. If you think loss aversion and groupthink is bad in equity-land, you should check out the bond market.
His most recent studies,
using millions of daily/monthly datapoints on mutual funds over the decades, is similarly definitive and unrefuted. Given his 5 CFA Institute awards for excellence in research, awarded annually, plus his expertise in this field in both academic and real-world applications for 3 decades, you can't simply hand-wave him away. [and to attempt to without reading all his research on this topic is patently absurd]
The facts destroy any # of academic theories about 'how no one can beat the market.' I would agree most people could not beat the market after fees, but some clearly have, by a statistically significant margin. I get the feeling you are ignorant of the size and consistency of outperformance of those managers in the top 1% of 1%, decade after decade -- you would need 80 Quadrillion professional managers on Earth to explain away just 1 of them.
Regardless, either you are saying:
1) Alpha does not exist anywhere, which is patently false, or
2) Alpha is unobtainable by anyone.
If you really believed #2, you would buy your market beta for 2-3bps from BGI and short-sell listed hedge funds: RAB Capital, Soros, Man, Polygon, et al in London, there are hundreds more listed in Luxembourg.
In a 10% 'market' year, you'll make your 9.95% on beta, and also make another 3% by having shorted the '1 and 20' guys who will only be returning 7% in those years.
Or, run market-neutral, make Libor +3% over time. People would flood you with more capital than you could every possibly imagine.