I think the most important part is this quote: >“What we found is that it’s a gain for large sophisticated investors who can afford the substantial costs of acquiring and processing big alternative data” This is yet another example of wealth accumulating, of rich actors getting richer faster than poor ones. Without some controls on the behaviours that allow wealth to accumulate, it will further concentrate among the…
Just invest in a Vanguard fund and you'll be fine. You don't need to start your own fund, just like you don't need to be your own doctor.
Nothing new here other than satellites. Years ago (1990s?) Peter Lynch - at the time manager of the largest mutual fund followed his daughters into a shopping mall for back to school - his daughters didn't go into GAP stores so he went back to the office and sold as his shared of GAP. His fund beat everyone else by a large margin because GAP stocks dropped a month latter when they announced the earnings drop. This is…
Where did you get this anecdote from? Googled it, couldn't find anything
This is exactly right. If you're upset about this then you should be upset that hedge funds can afford to hire smarter analysts than you, which is just silly.
I agree, but where's this end up? Why would retail investors play a game where they're almost certain to lose?
Retail investors usually do not day trade, do not do HFT, and do not rely on exotic instruments. Hedge funds do have an edge in some specific fields, but everybody still can do medium-to-long term investing.
This article is very wrong to confuse "material non-public information" with hard to acquire information like counting cars in satellite photos. Remember the Matt Levine test: insider trading is about theft, not fairness. When a company insider uses private company information to trade (or colludes with an outside party to do so) they are stealing material non-public information from the company for their own benefit…
Which part of the article do you think confuses MNPI with alternative data? It seemed that the purpose of the paper is to point out how the line between “public” information and “non-public” information is blurring for those who can afford access.
And given how difficult it is to define insider trading that seems like a pretty accurate assessment to me. Alternative data firms are the new expert network firms in the wake of Rajaratnam.
This article is very wrong to confuse "material non-public information" with hard to acquire information like counting cars in satellite photos. Remember the Matt Levine test: insider trading is about theft, not fairness. When a company insider uses private company information to trade (or colludes with an outside party to do so) they are stealing material non-public information from the company for their own benefit…
I'm more than a little surprised that Haas would publish an article that seems to indicate a complete lack of understanding of the purpose of the markets. Better data yields more efficient markets which is what we actually want. “Technology was supposed to level the playing field, but what I see is the fence separating sophisticated and unsophisticated investors growing higher,” says Patatoukas As if that's a bad thi…
Technology does level the playing field. As a software engineer, I can get access to realtime institutional-grade data and write strategies that were impossible even a few years before. Not even speaking about crypto exchanges, where all data is public.
This is exactly right. If you're upset about this then you should be upset that hedge funds can afford to hire smarter analysts than you, which is just silly.
I agree, but where's this end up? Why would retail investors play a game where they're almost certain to lose?
Lose is relative. If a retail investor picks a stock that ends up outperforming the market then they’ve still done well, even if the hedge fund bought and sold at better time than the retail investor.
The smart hedge funds' edge is pervasive but small. And there are a lot of dumb hedge funds! (Also a lot of scheming hedge funds that are fee maximizers, not investment-return maximizers.) The upshot is that for a year in which market indexes are up 9.1% and the smartest investors do much better, Pat Q. Public can still earn maybe 8% as a retail investor in single stocks if she/he doesn't churn it all away in overly…
Right. Even Jim Simons of Renaissance Technologies, has publicly stated that their edge is small. They amplify it with leverage, like all funds do.
Though I have a great amount of respect for them, I'll point out that Jim Simons may have multiple motivations to downplay the size of any edge that RenTech has over the averages.
I agree, but where's this end up? Why would retail investors play a game where they're almost certain to lose?
They shouldn’t. Pick a Vanfuard fund, put your money in it, and check back in a couple decades.
In this case there still is the discussion of which Vanguard fund to pick. Putting your money into the SP500 is not the “market portfolio” so to speak. In that case you are overweight large-cap and overweight US. In short, picking an index fund is different (and in many cases leas complex) than picking individual stocks, but it’s still not a trivial exercise.
I agree, but where's this end up? Why would retail investors play a game where they're almost certain to lose?
They shouldn’t. Pick a Vanfuard fund, put your money in it, and check back in a couple decades.
There are still good reasons to buy-and-hold on single stocks as an individual investor, though doing so increases risk significantly over index and Vanguard-style funds.