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In my opinion, there are probably some persistent quirks and patterns in human minds and computer programs (also written by humans) which may not be fully exploited by most market participants in some markets (esp. Emerging and Frontier markets). One well-known pattern is Momentum trading, which is also a basis of Market Crash prediction model by Prof. Sornette, with a history of several accurate predictions. [1]

> “a few funds that at any given moment outperform the indexes.” But over the years, he explains, their performances invariably decline..

There are a few hedge funds that, over decades, still beat the market. Medallion Fund, according to public knowledge, consistently generates above-market returns, never had a down year, and even returned 80% in 2008, when stock markets all over the world crashed. Its trading model is a highly guarded secret. It does not even let outsiders invest (with exceptions for a few).

The fund belongs to Renaissance Technologies, founded by a renowned Mathematical Physics professor, Jim Simons, and employs many PhDs in Physics and Math. (This book writes about it in fair detail. [2])

[1] How we can predict the next financial crisis: http://www.ted.com/talks/didier_sornette_how_we_can_predict_...

[2] The Physics of Wall Street: http://www.amazon.com/The-Physics-Wall-Street-Unpredictable/...

If results were randomly distributed, you'd expect a very few funds to perform that way.

The reference was to other mutual funds. Hedge funds are not accessible to the average retail investor and invest in things that average investors don't have access to.

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