I'm terrible at a lot of things. Everyone who has witnessed me try to ski has had a belly full of laughs. There's one thing that I'm typically really good at - finding the inefficiencies of systems. Sometimes I'm able to use them to my gain and other times, I'm just too Lazy to implement the idea.
Since I started Lazy Man and Money, the premise behind it would be that I'd figure out smart places to put my money and with minimal effort, it would grow. After all, it is an information age and it seems much more money is made through thoughts and ideas than physical work. The problem is that I simply can't figure out where these places are.
I've figured out the problem though. It's just that the markets are too efficient now. Let's take the housing market, for example. During my parents' generation (baby boomers) and even through the early 90's it seemed as though it was possible to buy a property and rent it for a profit. While real estate is dropping, I haven't seen such a property in years. Maybe with up-coming foreclosures there's an opportunity there, but you can imagine that there are millions of people having the same idea.
In trying to think of other ways to make money, the stock market comes to mind. However, the market is so efficient that monkeys throwing darts tend to do as well as the professionals. The only money to be made there seems to be by buying and holding securities with as low expenses as possible. It's possible that you can time the market and play longer term trends. I've looked into this through some sector plays, but it's still just an educated hunch.
What does this leave me with? It leaves me looking for new markets. By being an early adopter, I like to get in before the market matures and becomes too efficient. This means that I also face increased risk. The best example of this is Prosper.com, an auction house for loans. I see some inefficiency while the membership is small. However, if everyone was a member, lending and borrowing money, I wouldn't be able to take advantage of these inefficiencies.
Have you found any market inefficiencies? If so, how did they work out for you? Do the inefficiencies still exist?
4 Responses to “Are Markets Too Efficient?”
Next: Alternative Income Streams Progress – Early December