[DcifrThs]

i strongly agree with you,

and i strongly disagree with you.

Agree: hedge funds and other large money managers are often limited in their scope and miss, sometimes, the largest inefficiencies and easiest money to be made either due to imposed restrictions (leeway) or having too much money to invest in small stocks (b/c at that point they'd move the whole market to take even a small position relative to their whole portfolio).

dealing with complex, not often traded or talked about issues (in stocks) or derivatives in markets is certainly analagous to sitting in a nice soft 20/40 game after playing a tough ass 1/2 game w/ some strong players.

but, i also strongly disagree with you.

Disagree: i appreciate your posts and am glad to have somebody w/ that experience contributing...but i'm shocked that you mistake liquidity for efficiency so readily.

specifically, you state:

[ QUOTE ]
Most new traders chose liquid options...
Or liquid futures contracts or liquid index funds or liquid commodities...
Which is very roughly like a Party $11 player...
Walking into the Bellagio and sitting into the toughest game...
You are playing against the best in the world.

[/ QUOTE ]

now this may be a simple overlooking of the obvious, but just because a market is liquid, isn't sufficient for it to be efficient. take currency markets. or the UK IL bond market.

i was asked about this in some other thread. the question was, "i hear currency markets are the most liquid & thus most efficient and nobody can beat them, is that true?"

well, it most certainly is not. when you have a non-profit seeking entity doing nothing but pouring a TRILLION!!!! dollars down a sinkhole, you have what i would readily call a f*cking insanely inefficient market (where imo efficiency is correctly taking into acct all info and where all entities in the mkt are profit seeking etc. etc.).

so you can have inefficient supremely liquid markets.

the UK IL bond market's real yields are artificially low (and thus BEI artificially high) because it is mandated by the govt that all pension fudns must match liabilities & assets to some degree or other (i forget the actual reegulations). that said, the UK IL bond market is one of the biggest available to trade (though has recently been overtaken).

so overall, i agree with your assessment of maximum expectation per unit risk being available in illiquid & inefficient markets.

but i want to strongly separate the conditions for "liquidity" and "efficiency"

thanks again for your contributions,
Barron