"There Ain't No Such Thing As A Free Lunch"

We have shown that without risk there is no reward. Only the slimiest predators in the investing world say otherwise. They are preying on people who never heard the phrase "too good to be true".

The more insidious pitch comes from smart, silver-tongued salespeople and brokers who convince you that their fund or watchful eye can spot the best deals. Their pitch is usually just a slight tweak. They give the most optimistic possible pitch that registers just below your bullshit detector.

This lucrative sales ability is much further ahead than their investing acumen is I assure you.

Reality Check By Induction

The reality is there are conceptually very few sources of edge in markets. They rely on rare information asymmetries or even rarer analytical abilities. The chance you are being offered access to that is zero.

A sensible pitch would offer you a fair payoff for a given level of risk. The logical basis for this trilemma is captured by what Newfound Research coined The Frustrating Law of Active Management which states*:***

For a strategy to outperform in the long run, it must underperform in the short run


  1. If achieving outperformance with a certain strategy is perceived as being “easy,” enough investors will pursue that strategy such that its edge is driven towards zero.
  2. Rather, for a strategy to outperform in the long run, it has to be hard enough to stick with in the short run that it causes investors to “fold,” passing the alpha to those with the fortitude to “hold.”

You can also flip the table around.

Even if a strategy was purely dominant in all circumstances, its manager would have the clout to choose its investors. They would either select investors who could offer them something of high value in exchange or they could select investors who were willing to pay fees so large that the manager retains all the surplus of their dominant strategy.

Be Wary Of People Selling Noise As Signal

We are right to be wary of quack remedies. Since many conditions, including the common cold mean revert, our minds are quick to assign causality to what is actually randomness. "My cold went away I guess the mega dose of Vitamin C worked!". The charlatans of the investing world are just quacks with expense accounts.