[logfromblammo]

An economist and a reporter were walking down the street when a $20 bill blows into their path on the sidewalk. The economist looks at it, smiles knowingly, then steps over it and continues walking. The reporter says, "Why didn't you pick up that $20 bill?" The economist replies, "If it was really a $20 bill, someone would have picked it up already."

By the economist's reasoning, someone already has a strategy to take advantage of index funds. Actually, a lot of someones already have every possible strategy to take advantage of index funds. So none of them really make significant returns, because the dead whale is eaten by a million scuttling isopods, each taking one or two bites before it's all gone. So the real money is in taking advantage of those guys, perhaps with fees or paid reports or little boxes that light up and go "ping".

Of course, just because all the free money is already being picked up, doesn't mean you will never catch a flying $20 bill if you decide to make a grab for it. No market is perfect, and there's always an opportunity to grab some free money somewhere.

[DennisP]

Yep I read Random Walk on Wall Street too, a while back. More recently I read a stack of books on quantitative investing strategies, which referenced a lot of academic work. Turns out quite a few academics don't really believe in the EMH anymore; it's just not holding up to historical evidence. There are all sorts of factors that can make markets less efficient.