“Let me tell you how this works: A twenty-six-year-old quantitative analyst at a hedge fund in midtown Manhattan—a person who has never managed an employee, never sat across from a customer, never had to explain to someone that their position has been eliminated—opens a spreadsheet, sees that your company’s headcount is 14% higher than a competitor’s, and writes a note to institutional investors that your stock is overweight.
That note gets circulated and your stock drops. Your board panics. They call the CEO, who was hired eighteen months ago specifically to “unlock shareholder value,” a phrase that should be studied by future anthropologists as one of the great euphemisms of our time. An all-hands meeting is called. Two weeks later, 3,000 people get a calendar invite from HR titled “Quick Chat.”
This is the system working exactly as designed.”
No, this is not how this works.
I see this stuff all the time. Sometimes it’s a news item, or a Substack post, or a video clip that purports “a great truth” about markets and companies. Clients, friends, even family members who don’t work in finance share this with me (the excerpt above was from a Substack).
The implication: the system is somehow both already broken and fragile.
This is a fundamental misunderstanding of how markets operate, what drives stocks, and how information truly gets reflected in prices.
Let me explain why this is decidedly not how things work.
The information this 26-year-old analyst “discovered” is a simple ratio. It shows the number of employees relative to some other metric, such as revenue or profits. Assume it came from a well-known (trustworthy) data source. It’s available to various market participants: the 400,000 professionals who pay $3,000 per month for a Bloomberg Terminal; the near-professionals who subscribe to other databases or free versions available in broker research. You can even find variations on Yahoo Finance or Google.
Each of these participants has huge financial incentives to apply this analysis to their own portfolios. But they don’t, because of one simple reason: Zero edge. A widely reported ratio that every other investor has access to provides no advantage over other market participants with that same ratio.
It is already in the stock price.
When I was a newbie trader, it took me a good long time to understand why this is true – and indeed, could not be any other way.
All fundamental information that is widely distributed and/or well known by the investment community is already priced in. Hundreds of thousands of people are deeply incentivized to identify alpha — information that allows you to outperform the markets – and then to deploy capital based on that.
That already happened here.
What is the edge in the story above? What is the insight this “discovery” – and I believe it’s nothing of the kind – uniquely provides to this person?
There is simply no alpha in widely available information, such as an obvious, well-known, easily discovered ratio.
~~~
Let’s do a quick thought experiment:
Imagine the scenario outlined above was successful: what would happen if some inexperienced kid at some fund spotted an aberrational datapoint, wrote up a research note, took it public, which led to a hugely profitable trade?
What would happen next?
Some of you know exactly what would come next: Every fund would unleash every MBA in their shop (along with anyone half decent with Excel) to find the next version of that trade. No data point would go unnoticed, no ratio would sit unanalyzed, no possible combination of variables would remain untried. Any and every possible source of Alpha would be explored, war-gamed, backtested, and modelled.
If other trade possibilities like this one existed, someone would find it and act on it. Others would quickly follow. Soon, the “proper” alignment between these ratios would fall into place. Any upside would be thoroughly arbitraged away…
Markets are not perfectly efficient; I have described them as kind of sorta eventually efficient. I have yet to find anything that disproves this thesis.1
But as far as the major issues go — the big obvious things found in newspaper headlines, in any datapoint in every Bloomberg terminal, in the free research via brokers or online websites — you may safely assume that 98% of the time, it’s already in the price.
What is not in the price?
Many things, across many vectors:
-Genuinely new, unknown information. (FDA Approves new drug!)
-A unique analytical framework no one else had access to (Renaissance Technologies’ 3000 separate proprietary, unique trading algos)
-Insight into a product (The Cybertruck sucks!)
-Recognition of a deeply flawed business model (short Microstrategy!)
-Grasp of a market unknown (Rivian R2 is going to be a global bestseller!)
-Legal insight (SCOTUS will overturn Tariffs — retailers and industrials will benefit)
-Complex risk analysis (Securitized subprime mortgages are sure going to be problematic if rates go up!)
-Behavioral recognition of a crowd mania (Silver sure looks bubbly over $75 100!)
All of these and more can be sources of alpha. But they must genuinely be poorly known or misunderstood by the crowd, and acted on even less.
Good bets made by active traders and managers amid fierce competition look different than bets made on very publicly available information.
Start with a variant perception versus crowd consensus; you want to see the price significantly impacted, and this perception hasn’t been acted upon by many, and hopefully remains that way until you establish your position. The crowd, correct most of the time (we call this a trend), is wrong in this instance; once it recognizes its mistake, it shifts away from what it now sees as the incorrect consensus and adjusts its portfolios accordingly.
Not all active players trade this way, but enough do. These great insights do not come along every day, but they occur frequently enough to entice an entire active segment of the market to consistently hunt for them.
And that 26-year-old spreadsheet jockey? He is going to need more than a simple headcount ratio to find any alpha…
Previously:
Tariffs Likely To Be Overturned (November 5, 2025)
The kinda-eventually-sorta-mostly-almost Efficient Market Theory (November 20, 2004)
__________
1. Indeed, even the Nobel Prize committee acknowledged this by recognizing in the same year both Eugene Fama for his efficient market hypothesis and Robert Shiller for studies of how bubbles develop and pop.
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