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What Business is Wall Street In?

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Re: What Business is Wall Street In?

#161

Post by its_so_on »

josephlord wrote: post #122
its_so_on wrote: post #98

Earlier quoted context omitted.

sorry about the format, i'm intentionally trying to not so much to be accessible as to reach certain people who might already know. i'd like their feedback. you are completely right that it's hard to peg the shift in present-wealth without a crystal ball, which nobody possesses - moreover, the future isn't even written. so let's give you the crystal ball - it jumps wildly between valuation your net-present at a few m…

I agree with the logic but let me propose some additional benefits/reasons to do it yourself. Freedom from responsibilities to others (employees, investors) could allow creativity. Singular vision for the product without compromise. No need to describe requirements to others. Get a basic understanding of all areas while it is fairly simple before scale up (accounting etc.). Also the pure logical case only really work…

thanks for these thoughts.

Re: What Business is Wall Street In?

#162

Post by btilly »

lifeisstillgood wrote: post #157
nirvana wrote: post #145

Earlier quoted context omitted.

Exactly. And we should just stop calling them "Value" investors. This is true for growth investors, any kind of investors, in fact all investors. Investing is about knowing the difference between value and the price. When you can do that-- and when I say "knowing" I mean it, and I have a spreadsheet to calculate it-- then you can buy low and sell high. The problem is wall street is in the business of managing other p…

If you walking into the saloon ready to play poker the proper way (you know, 5 cards, held in your hand) and every game at every table is mucking around with Texas Hold 'em, it's no good saying you know the real value of poker - even if you are right, and value is written into your spreadsheet. Never ignore Keynes' rule - the markets can stay irrational longer than you can stay solvent.

If you are able to afford to buy and hold, then it does not matter how long the markets stay irrational - you've bought it and it should work out.

Where Keynes' rule applies in spades is when you are doing things like shorting an overpriced stock. Now as the price goes up you keep on having to put more money in, and should you run out of money you lose your shirt.

And about poker, there are a lot of variants of poker out there. Texas Hold 'em is what everyone is playing because it has the combination of more strategy and thinner edges. So good players have a real challenge figuring it out, and weaker players have a better chance of walking away lucky on any given night.

Re: What Business is Wall Street In?

#163

Post by arthurrr »

plc wrote: post #147
tptacek wrote: post #144

Earlier quoted context omitted.

No, most of the people here have no experience in high-end trading. And no, it's not informed by facts. It's very frustrating, but if it's any consolation, it's the same kind of struggle against ignorance that occurs on threads about cryptography (a nerd subject) or language design (another nerd subject). Personally, I'm not irritated at the nerds (after all, I'm one of them) so much as I am at places like Zero Hedge…

Agreed, those blogs/publications are horrendous. Just factual stuff that is wrong all over the place. I wouldn't mind if people had concerns, as long as they realize it's a very complicated subject, so maybe they should ask questions, instead of making stupid assertions that are clearly false and try to sound like experts in a subject they've thought about for 10 minutes.

Zero Hedge was an excellent site in its early days before it became popular. Most of the good contributors have left the site, understandably.

And Matt Taibbi was responsible for the legendary characterization of Goldman Sachs as a "great vampire squid wrapped around the face of humanity."

Re: What Business is Wall Street In?

#165

Post by aaronbrethorst »

nirvana wrote: post #145
chromatic wrote: post #135

Earlier quoted context omitted.

Better than that, an irrational dip in a stock's price due to an analyst recommendation or another factor may represent a good opportunity for a value investor!

Exactly. And we should just stop calling them "Value" investors. This is true for growth investors, any kind of investors, in fact all investors. Investing is about knowing the difference between value and the price. When you can do that-- and when I say "knowing" I mean it, and I have a spreadsheet to calculate it-- then you can buy low and sell high. The problem is wall street is in the business of managing other p…

> The problem with wall street is government regulation which is idiotically designed, and intervention-- in the form of bailouts-- that perverts the entire system incentivizing gambling.

Deregulation. http://dealbook.nytimes.com/2009/11/12/10-years-later-lookin...

“Without the...repeal of Glass-Steagall...Washington might not have felt a need to rescue the institutional victims.”

Re: What Business is Wall Street In?

#166

Post by prodigal_erik »

btilly wrote: post #162
lifeisstillgood wrote: post #157

Earlier quoted context omitted.

If you walking into the saloon ready to play poker the proper way (you know, 5 cards, held in your hand) and every game at every table is mucking around with Texas Hold 'em, it's no good saying you know the real value of poker - even if you are right, and value is written into your spreadsheet. Never ignore Keynes' rule - the markets can stay irrational longer than you can stay solvent.

If you are able to afford to buy and hold, then it does not matter how long the markets stay irrational - you've bought it and it should work out. Where Keynes' rule applies in spades is when you are doing things like shorting an overpriced stock. Now as the price goes up you keep on having to put more money in, and should you run out of money you lose your shirt. And about poker, there are a lot of variants of poker…

Without dividends, there's no reward for buy-and-hold investing, and no reason to pick companies that will actually perform well. Instead anyone who buys is gambling that they'll be able to dump their position at a fortunate time, which leaves them dependent on predicting the irrational market's perception of the company's prospects.

Re: What Business is Wall Street In?

#167

Post by meric »

uptown wrote: post #11
patio11 wrote: post #5

It is getting increasingly difficult to just invest in companies you believe in. Like how twenty years ago you could buy a stock you believed in for like $4 by using a computer system, paying a fraction-of-a-penny spread on average, to have a trade executed in milliseconds to seconds, but now you have to talk to a human on the phone and pay a $400 commission to pay a fraction-of-an-eighth spread and have the trade ex…

"It is getting increasingly difficult to just invest in companies you believe in." You're interpreting that sentence literally. His point is that investing in a company used to largely be based on how successful you though that company would be. The market has changed in a way that an overwhelming number of external factors can have a negative (or positive) impact on that company's share price, making the evaluation…

You can always take out market risk by hedging against the index. i.e buy the stock, short the index and bet the stock will do better than the market overall.

Re: What Business is Wall Street In?

#168

Post by drawkbox »

programminggeek wrote: post #31

HFT, brokerage houses, and wall street in general is about providing the service of being a middle man and profiting from standing in the middle of a transaction. Traders via automated machines or human beings facilitate a transaction between a buyer and a seller. That's the business. It's not about providing capital or whatever else people think it is, it's about being basically a sales agent. Before computers, Wall…

I am not usually a fan of regulation but his 10c tax for trades in less than an hour may help this out big time. It really is just like API throttling so people or consumers don't abuse the systems for all. Then again day trading and hedging is a big part of investment portfolios now and this would change things big time.

Whether its through a use of taxes on trades(hit every trade on a stock held less than 1 hour with a 10c tax and all these problems go away), or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 1 year or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years.

There are probably some edge cases where a time based tax would be a problem but for the most part I think it would drastically reduce the HFT skimming. Then again, if you are making money on the market you are probably doing the skimming.

A big problem for markets is weak or too many short term investors, they can create a snowball effect. HFT trading algorithms are very short and can create flash crash windfalls. Luckily they can also buy up when those things happen and the whole thing is over in a blink but that seems too risky. What happens when all the trades are by HFT algorithms? Eventually if those make all the money then everyone will use them all the time. Where are the long suckers then?

Re: What Business is Wall Street In?

#169

Post by lifeisstillgood »

dchichkov wrote: post #160
lifeisstillgood wrote: post #154

Earlier quoted context omitted.

Yes, the HFT assumes the risk, for it is acting as a Market maker. My point was that there already was a Market maker there - another is not more liquidity. Liquidity is a binary term IMO. Having two Market makers in same product does not make more liquidity it just makes liquidity cheaper. That might benefit the seller but makes no difference to the exchange function in the comics, when Superman is protecting Metrop…

Actually having two (or more) market makers benefits the market. Because a single market maker can pause or quit at any moment in time.

That's the same thing ... An extra Market maker provides no benefit apart from being able to easily prevent there being no Market maker

Anyway makers have specialisms and get advantages from the exchange - they are not supposed to just bugger off home cos it's Tuesday

Re: What Business is Wall Street In?

#170

Post by makomk »

PaulHoule wrote: post #15
mej10 wrote: post #10

Earlier quoted context omitted.

Trading stocks is fantastically easier, sure. That is obvious. And he says so at the end: "There is value to trading automation. It is here to stay." He never says _trading_ is difficult. Your comment would be more interesting if it confronted his main point: "There is absolutely NO VALUE to High Frequency Trading. None. We need to bring our markets back to their original goals of creating capital for business. "

I think it's a miracle that you can ask for $500 dollars of a thinly traded stock and quite quickly get an offer to get it at $515. That's how market makers make money. They match up investors who want to buy and sell the amount they want to sell at the time they want to sell it. Contrast to the private corporation that I own shares in, where it's taken me weeks to broker a deal to buy some more shares from another s…

The trouble is that that HFT is basically driving market makers out of business. Traditional market makers were obliged to continue trading even when the entire market had gone to shit, a service they could afford to provide thanks to their profits during normal market operations. The new breed of HFT firms that have displaced them don't do that, so as soon as the market goes a bit funny all the liquidity vanishes and people can't actually trade easily.
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