Or would you have thought, “I wonder what that trader selling Avant! for $2 knows that I don’t?”
The correct move is to think this, but correctly conclude you have the information advantage and keep buying. Adverse selection is extremely prevalent in public markets so you need to always be thinking about it, and as a professional trader you can and must model it well enough to not be scared off of good trades.
That point is contradicted by the wheelbarrow examples in the OP, which seem to imply that either you’ll be the greater fool or you’ll be outbid by the greater fool. Why wasn’t Burry outbid by a fool who thought that Avant! was worth $40 a share?
This is why I disagree with the OP; like you, I believe that it’s possible to gain from informed trading, even in a market filled with adverse selection.
OP was a professional trader and definitely (98%) agrees with us. I think the (edit: former) title is pretty misleading and gives people the impression that all trades are bad though.
The correct move is to think this, but correctly conclude you have the information advantage and keep buying. Adverse selection is extremely prevalent in public markets so you need to always be thinking about it, and as a professional trader you can and must model it well enough to not be scared off of good trades.
That point is contradicted by the wheelbarrow examples in the OP, which seem to imply that either you’ll be the greater fool or you’ll be outbid by the greater fool. Why wasn’t Burry outbid by a fool who thought that Avant! was worth $40 a share?
This is why I disagree with the OP; like you, I believe that it’s possible to gain from informed trading, even in a market filled with adverse selection.
OP was a professional trader and definitely (98%) agrees with us. I think the (edit: former) title is pretty misleading and gives people the impression that all trades are bad though.
Because there were enough people selling for prices lower than $40 to satisfy the demand for greater fools?
Also, stocks can be sold short if the price goes too high.