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I might be a complete failure (after 8 years of work)

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Re: I might be a complete failure (after 8 years of work)

#81

Post by arthurdent »

WalterBright wrote: post #79

Any algorithmic method of beating the market can only be successful if it is a secret and if its trades are of insignificant volume. Otherwise, knowledge of this algorithm will be factored into the prices, defeating it.

this is really not entirely correct.

when things started melting down in 2008, it was largely attributed to the fact that hedge funds basically all had the same strategies in their book. When one started liquidating, many started losing value and liquidating in a disastrous feedback loop.

There are plenty of strategies that are very robust, and in hedge-fund land, its not uncommon that many players are playing very similar hands.

In fact, there even exist strategies that get better as more people run them.

Re: I might be a complete failure (after 8 years of work)

#82

Post by rjett »

"Every few months, I find myself excited over the preliminary results of my increasingly sophisticated simulations, only to be disappointed a few short weeks later to find that I was simply wrong."

Isn't this why algorithmic traders "refit" their algorithms on a daily basis?

Re: I might be a complete failure (after 8 years of work)

#83

Post by wisty »

illumin8 wrote: post #51
jeromec wrote: post #40

Earlier quoted context omitted.

> This is what happens when you play a zero-sum game. Even if you win, someone has to lose. How is it always a zero-sum game to win? Fundamentally, trading stocks is not that at all. If I buy one of the first issued shares of "Tasty Ice Cream" for $1 because I want the company to spread their goodness as well as get a return on my money, no one has lost. If I lose my job the next week and need to sell my share which…

This is only true for long-term investors. Algorithmic traders have no vested interest in whether the underlying business succeeds or fails. They are only there trying to predict where the wind will blow next. They are quickly in and out of any potentially profitable company; quick to buy "puts" in a momentary time of weakness or "calls" in a time of temporary strength. For algorithmic traders, it is indeed a zero-su…

Not really. For algorithmic traders, the transaction costs will dwarf the dividends, so it's really a negative-sum game. Unless there's a very small volume of algo-traders, and a large volume of long-term traders who just happen to be re-adjusting their positions while the game is being played.

Re: I might be a complete failure (after 8 years of work)

#84

Post by jackowayed »

mwerty wrote: post #74
jey wrote: post #14

Seems like it'd be a better bet to apply all your skills to creating value (wealth) instead of just trying to push it around a smidge more efficiently. In other words: find a real problem and solve it, increasing global wealth in the process, and collect the economic reward.

The median startup does not offer a better outcome.

The median guy who tries to hack the financial markets on his own has the exact same outcome as the median startup, and he's getting that outcome.

Re: I might be a complete failure (after 8 years of work)

#85

Post by nandemo »

jeromec wrote: post #40
edw519 wrote: post #19

After eight years, I have nothing concrete to show for my efforts. So sad, so true. This is what happens when you play a zero-sum game. Even if you win, someone has to lose. Here's an idea. For the next 8 years, why don't you do something that helps others by making the pie bigger for everyone instead of just trying to game a bigger piece of a smaller pie for yourself. When you do for others, you always have somethin…

> This is what happens when you play a zero-sum game. Even if you win, someone has to lose. How is it always a zero-sum game to win? Fundamentally, trading stocks is not that at all. If I buy one of the first issued shares of "Tasty Ice Cream" for $1 because I want the company to spread their goodness as well as get a return on my money, no one has lost. If I lose my job the next week and need to sell my share which…

It is a zero-sum game as long as you define it as follows: a trader's score for each transaction is (price paid - closing price). If Alice sells GOOG at $100 to Bob, and GOOG closes at $99 that day, then we say that Alice won $1 and Bob lost $1. That's all.

Maybe 1 year later Bob will sell GOOG to Alice at $200, and the stock will close at $201. Again Alice won $1 and Bob lost $1.

Of course Bob made a lot of money in the process, so the zero-sum game definition might sound arbitrary. However, as far as trading is concerned, the definition as zero-sum game is useful. If Bob were a better trader (more skilled or luckier) perhaps he could have saved $2.

See The Winners and Losers of the Zero-Sum Game by Larry Harris.

http://www-rcf.usc.edu/~lharris/ABSTRACT/Zerosum.htm

Re: I might be a complete failure (after 8 years of work)

#86

Post by marvin »

WalterBright wrote: post #80
edw519 wrote: post #19

After eight years, I have nothing concrete to show for my efforts. So sad, so true. This is what happens when you play a zero-sum game. Even if you win, someone has to lose. Here's an idea. For the next 8 years, why don't you do something that helps others by making the pie bigger for everyone instead of just trying to game a bigger piece of a smaller pie for yourself. When you do for others, you always have somethin…

Trading stocks isn't a zero-sum game. The value you deliver is to (more) accurately price the shares. It also isn't zero sum in that the person on the other side of the trade values what you're giving in exchange more than you do, by definition.

Beating the market is a zero-sum game.

Re: I might be a complete failure (after 8 years of work)

#87

Post by VictorHo »

edw519 wrote: post #19

After eight years, I have nothing concrete to show for my efforts. So sad, so true. This is what happens when you play a zero-sum game. Even if you win, someone has to lose. Here's an idea. For the next 8 years, why don't you do something that helps others by making the pie bigger for everyone instead of just trying to game a bigger piece of a smaller pie for yourself. When you do for others, you always have somethin…

Calling trading a zero-sum game shows a fundamental lack of understanding of finance. We may have very negative views on the industry, but it exists because it serves many fundamental (and necessary) functions, including:

* Accuracy in pricing shares (and it is important to know the actual value of a company for many reasons)

* Enable market participation. In many illiquid OTC markets, it is all but impossible for anyone outside large institutional players to participate. More trading = lower transaction costs, more transparency, and ability for the little guy (me) to join the action

* Liquidity. And yes, this is very important. It is a common answer because it is a good one

* The same security can be worth different amounts to different people. By definition this precludes it from being zero sum (this statement is of course subject to what school of financial theory you subscribe to)

* Performance measurement. Stock options have gotten a lot of bad press, but compensating a CEO according to lets say, revenue, is much less unbiased and can lead to worse outcomes (e.g., grows business in unattractive segments or over-invests to boost top line)

* Others

The above are in no way MECE and overlap in many ways. Markets can definitely be better, but calling it a zero-sum game or completely value-less to society is a bit too far.

Re: I might be a complete failure (after 8 years of work)

#88

Post by daylast »

I hate to be the bearer of bad news but, based on the comments you've made in your post, you are most likely a smart fool (as you have so aptly put). In essence, you don't even know what you do not know. I've worked at top-tier Wall St institutions and have had first hand experience working with several of the largest quant hedge funds out there. Here's my advice: if you truly enjoy markets and are sure you want to take this path, you will be much better served by spending several years working at an established quant hedge fund. This will open your eyes to the theory, processes, data, and techniques required to earn alpha consistently and in a risk efficient manner. It's a long road and that road is full of extraordinarily hard working and intelligent people that one has to constantly compete against. If you can handle this though, you will learn a bunch and at some point in the future you can strike out on your own again. At that point you will at least have a chance of success. Good luck!

Re: I might be a complete failure (after 8 years of work)

#89

Post by [deleted] »

jey wrote: post #76
mwerty wrote: post #74

Earlier quoted context omitted.

The median startup does not offer a better outcome.

If you're only going to get the median outcome, don't do a startup. If you have a real chance at making it, do a startup. Yes, people mis-estimate their ability all the time, but that's part of life. If you want a safe good outcome, become a doctor or something.

[deleted]

Re: I might be a complete failure (after 8 years of work)

#90

Post by nandemo »

majma wrote: post #67
nandemo wrote: post #53

Earlier quoted context omitted.

So sad, so true. This is what happens when you play a zero-sum game. Even if you win, someone has to lose. When you play football too, if you win someone has to lose. And yet there are positive externalities, to wit millions of people watching the World Cup. In trading, the externalities might not be so obvious but they do exist.

Could you explain more please? Bonus points if you do it without using the phrase 'provide liquidity'.

A short answer would be: one of the externalities that traders like the OP provide is lowering transaction costs for other traders such as investors. Compare trading stocks with speculating in real estate: buying a $150k house and selling it later might involve (say) $10k worth of commissions to your real estate agent, while trading fees on a comparable stock transaction are usually much lower.

Please see my other comment below and (especially) the linked article.

http://news.ycombinator.com/item?id=1467171

Another positive externality of trading is lowering the cost of funding for enterprises. Companies go through a lot of trouble to make an IPO; they do so because getting listed increases their sources of funding.

A longer answer would probably require a blog post, so that we could discuss whether I'm "cheating" -- after all don't the points above boil down to providing liquidity? Am I really "cheating" or maybe your condition is unreasonable? Et cetera. If I write such a post I'll post it to HN, though I doubt I could do better than Larry Harris.

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