One clarification - these mom & pop prop shops aren't necessarily competing against big baskets of MIT PhDs.
If your book size is only $200K, the big players (i.e. scores of MIT PhDs) won't even bother competing with you on the same strategies. Alpha from these strategies may very well be orthogonal to hedge fund alpha.
That said, you're still playing a zero sum game with other mom & pop shops and the general large-scale movements of the market. You need to be confident that you have better information / forecasting ability than the others, or technology infrastructure that enables strategies no one else can execute.
That said, you're still playing a zero sum game with other mom & pop shops and the general large-scale movements of the market. You need to be confident that you have better information / forecasting ability than the others, or technology infrastructure that enables strategies no one else can execute.
Source: I work in the industry.