Thread by @EpsilonTheory

Alpha = private information. Period. Full stop.

https://twitter.com/sallypancakes/status/1096113062971506688

I understand that we'd like to think that smarts + process + time = alpha. It's one of the little lies that we tell ourselves to get through the day. Here's the 10-year chart of Berkshire vs. S&P total return. Without private information (and often with it) THERE IS NO ALPHA.

When did fundamental active management begin to die? In August 2000, when Reg FD made it illegal to get private information from public companies. If Reg FD dated back to 1980, you would have never heard of Peter Lynch and Warren Buffett.

For more than a decade, Berkshire has been an exorbitantly expensive S&P 500 tracking stock. Sorry.

And if you’re hoping for an active management renaissance ... as passive, price-insensitive investing grows as a % of flows, alpha becomes *harder* to achieve, not easier. Alpha creation is not a mean-reverting phenomenon.

Last tweet on this thread, will compile for next ET note ...

Gov’ts decide what is legal and illegal private information.

Legal private information is the source of ALL legal alpha.

ergo ...

Gov’ts decide how much legal alpha exists in markets.

Munger: The whole trick is to have a few times where you know something is better. Invest only where you have that extra knowledge.

This whole thread started with my response to this quote.

TLDR: Munger is ABSOLUTELY CORRECT. Even for Berkshire.

Reaffirmed umpteen times from comments to this thread ...

Contrarian investors confuse outsized payoff from long-odds bets with edge.

Consensus investors confuse frequent payoffs from short-odds bets with edge.

Getting the right odds on a bet is not alpha.