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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: TigerPaw who wrote (54601)11/3/2003 11:04:27 PM
From: Stock Farmer  Read Replies (2) of 54805
 
The gorilla game hold the possibility of being accessable to those with the time and diligence to examine public records, where the selective advantage for picking more general stocks may require either luck or a more private network or private information.

True... but again incomplete logic.

Let's take as true that The Gorilla Game works. That it presents a sustainable arbitrage opportunity in the broad market.

But we know that the market acts to counter any arbitrage opportunity. In this case, the opposite forces to the Gorilla Game are easily identifiable.

Assuming that the Gorilla Game is a valid strategy. Then there is a basket of stocks {X,Y...Z} from which a Gorilla, G is likely to emerge. And this basket is priced such that the sum of market caps {Px, Py,... Pz} is less than the ultimate market cap of the eventual Gorilla Pg.

The holders of this basket of stocks are the eventual beneficiaries of the arbitrage opportunity, and will act to distribute the benefit amongst them so as to maximize entropy.

The obvious response of the market is to reprice the basket {Px', Py'... Pz'} so that the sum of market caps is increased by the amount of the expected eventual Gorilla, discounted by some reasonable factor for risk. And this is made more possible because the market is a weighing machine of ESTIMATED FUTURE CONSEQUENCES.

The implications are that while the market may indeed under-value the eventual Gorilla, it will end up over-valuing the candidates from which it will eventually emerge, and the resulting sum of gain and loss will neutralize the gorilla advantage as all potential players in the game take their slice of the arbitrage opportunity.
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