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I am reading a book by William Bernstein called Rational Expectations. He mentions something called the Umbrella Shop theory of investing. Basically 30 years ago, him, and his wife found an umbrella show in Paris that sold great umbrellas at affordable prices. Then came online hotel booking, greater prosperity, airline deregulation, ease of getting Euros, etc. The ease of traveling made the store more popular, and the umbrellas are no longer affordable.

This has happened to stocks over the last 50 years also. 50 years ago, you could not by a spider. You had to buy all 500 stocks individually from a broker. More to the point, the French Fama study of 1992 showed that small stocks, momentum stocks, and value stocks outperformed was not known.
Before 1980, it was next to impossible to put together a diversified portfolio of small, and value stocks.

Now, everyone knows that value and small stocks outperform, and the big money is chasing it. Anyone can buy an ETF with a few clicks that buys small and value stocks.
Consequently, it can be argued that the strategy will not work as well. This is called arbitraging the strategy away.

I don’t believe that it will be completely arbitraged away because in times of crisis, people still sell in a panic, and people with a strong stomach, can buy these stocks at a discount. However, from 1926 to the present, small value outperformed the regular market by 4% a year. I would be surprised if it continues to do that.
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