You are assuming that the stock market is as-good-as-random, and that you can't crowdsource aggregate market sentiment and private information (someone who knows that they will buy the next 5 Tesla cars, so they will contribute to the growth). If you have a 100 of those private information owners, and you aggregate it, you just encoded for brand loyalty. People betting on the GameStop play did so, in part because they were made aware that they were not the only one with nostalgia and hope for GameStop. They did this by pooling their private information.
Finally, if you do assume that clueless pickers are the same as a coinflip, then their noise should cancel out, leading to a very uncertain prediction of 50% (so you turned their non-knowledge into valuable information about the variance/confidence/mindshare penetration/information availability), and then the real experts votes will balance the vote in favor of the most likely prediction (you distilled their expertise).
Taken my counter-example to your spoiler to the extreme: Imagine if all Redditor stock traders gave their honest best guess on if a stock would be down or up next month. The market would become very predictable with that information. Crowdsourcing a subset, just lowers this predictability (but never down to the level of a coin-flip). This crowdsourcing for predictability is precisely the reason the bigger, profitable hedgefunds are crawling Reddit, viewing 16-year old Crypto coin pickers on Youtube, and analyzing retail trades on RobinHood.
Source? If by "random" you mean "randomly pick a company off the stock exchange using a uniform distribution and then buy/sell based on the result of a coin flip", you might be right. However, if your "random" means "randomly picking stocks on a market-cap weighted basis and then holding" (ie. passive investing), I'm going to doubt your claim.
>You are assuming that the stock market is as-good-as-random, and that you can't crowdsource aggregate market sentiment and private information
The problem here is that all that information is public and the amount of alpha is scarce. What I mean by the latter is that if the crowd through its wisdom decides that GME should be $10 higher, and everyone starts buying up shares, it will reach its target price in no time. If the information is kept secret, you might be able to reap all the gains, but since it's public everyone else is trampling over each other trying to get a piece of the action, diluting or even eliminating the benefit for everyone.
>Finally, if you do assume that clueless pickers are the same as a coinflip, then their noise should cancel out, leading to a very uncertain prediction of 50% (so you turned their non-knowledge into valuable information about the variance/confidence/mindshare penetration/information availability), and then the real experts votes will balance the vote in favor of the most likely prediction (you distilled their expertise).
The canceling-out effect only works if they're clueless and are just flipping coins, but doesn't work if they're clueless and are all trying to buy into the same bubble.
>Taken my counter-example to your spoiler to the extreme: Imagine if all Redditor stock traders gave their honest best guess on if a stock would be down or up next month
You do realize that the stock market is exactly that, right? A crowd-sourced prediction engine. Every participant makes their best guess at what the price should be. If they think the price is undervalued they buy shares, pushing the value up. If they think the price is overvalued they do the reverse. Through this mechanism the market collectively obtains the price of a company.
And I think it is enough to claim that the average of the recommendations was better than any individual stock picker.
> The problem here is that all that information is public and the amount of alpha is scarce.
Not insurmountable, no? I feel these objections are often busied by finance professors, after a student rudely assumes they wouldn't be teaching if they knew how to make money.
RenTech was doing speech recognition on foreign TV broadcasts in the 90s. Can't you think of similar features you could whip up in a 100 lines of Python and the YouTube API? Some very profitable companies hire very smart PhDs to that for them. Could you bootstrap this? Work harder? Extend to some new hip platform a well-paid quant has never heard of?
> trying to get a piece of the action, diluting or even eliminating the benefit for everyone.
So join in. You are aware of the action. It's not like we are doing this for a bit of fun. The crowd wisdom is there, the hedge funds don't have a monopoly on polling it or analyzing it. Then redistribute the wealth for the benefit of everyone. Those very hard in on the action are not going to.
> but doesn't work if they're clueless and are all trying to buy into the same bubble.
Yes, this is correct, and a big problem in crowd analytics. Or at least, it has a big negative effect (you ideally want everyone to make decisions of their own accord, using their own information). But you can also again harnass this with counter trading strategies. Over the years, it has been fairly easy to call the top of a hype, and predict the obvious correction. So for instance, if the Teletubbies twitter is tweeting about Bitcoin, you know that maybe now is time to sell some Bitcoin, and rebuy back in 6 months when all newspapers are writing about how Bitcoin is a scam and a world-wide crypto ransom attack just occured.
The problem can be overcome in a couple of ways. An interesting one is: "skin-in-the-game". If your wrong hype predictions damages your reputation or causes money loss, you are more serious about it. Another is to ask: What percentage of other people do you think got this question wrong? People who answer Sydney as the capitol of Australia, think that few got it wrong. People who give the correct answer think that many will get it wrong.
> You do realize that the stock market is exactly that, right?
Partly yes. The difference with crowdsourcing is that you are building a model on top of the other participants. Many day traders with bots do not know that hedge funds have models more complex tracking what they are doing and going to do, than the bot is complex. But many day traders also underestimate how they'd stack up against an office of suits, if they worked together, and ramen-noodle hacked it.
