Here's the strat. Let's say we have a portfolio of 50% cash / 50% your simulated stock. At the end of each day, rebalance this portfolio back to 50/50. Basically, you buy more stock if it goes down and sell some if it went up that day. Let me know the returns you see.
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Your tweet clearly implied that in order to make money there has to be some predictable behavior like mean reversion (or trend, presumably). But that's not true - a stock that wanders aimlessly with NOISE with a geomean multiplier of 1, so it goes nowhere - could make you rich.
I agree with that!* I have never disagreed with it! I didn't bring up shannon's demon -- I only pointed out that it doesn't work on price series that have zero arithmetic return (which is true of the price series I was using).
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The * is there because this only works in theory (in reality transaction and financing costs would eat all your pnl) and only for certain definitions of "very rich" -- in practice you would need to compound for dozens of years to become rich, even if you had no txn costs.
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Well, you're clearly making some assumptions on the (1+R) noise multiplier with geomean=1. If it's highly volatile noise, you could get rich as as fast as Rentech did with Medallion. And it's just random noise!
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You also only reveled the zero arithmetic return after the Shannon's Demon questions were brought up and after you called people insane. If the return was anything other that zero, would it work?
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"revealed"
End of conversation
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