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What Business is Wall Street In?

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Re: What Business is Wall Street In?

#181

Post by btilly »

yummyfajitas wrote: post #173
prodigal_erik wrote: post #166

Earlier quoted context omitted.

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.

Unfortunately dividends are double-taxed relative to cap gains/interest/etc. Until that's fixed, we won't go back to the era of companies returning money to investors.

Companies can and do return money to investors through stock buybacks. To first order, it is the same as a dividend, except that only the investors who want money get it.

Re: What Business is Wall Street In?

#182

Post by yummyfajitas »

btilly wrote: post #181
yummyfajitas wrote: post #173

Earlier quoted context omitted.

Unfortunately dividends are double-taxed relative to cap gains/interest/etc. Until that's fixed, we won't go back to the era of companies returning money to investors.

Companies can and do return money to investors through stock buybacks. To first order, it is the same as a dividend, except that only the investors who want money get it.

To first order, stock buybacks are equivalent to dividends. To second order, the IRS makes it complicated, as do regulators.

Re: What Business is Wall Street In?

#183

Post by lifeisstillgood »

Ntrails wrote: post #178
lifeisstillgood wrote: post #155

Earlier quoted context omitted.

My view (possibly wrong, it has been known) is that liquidity need only be provided by one party. A competitive Market in liquidity has minimal benefits it is unimportant if the Market maker holds for 1 pixo second or one month - what matters is that someone is there to trade. Now HFT is at a disadvantage as they have less scope to make their spread (essentially the other side must already be in the Market) but that'…

"I am conjecturing that there are minimal benefits to an exchange to having more than one Market maker at a given stock within a given price range." Could you perhaps explain the downside of having multiple market makers per stock? It seems trivial to state that competition in providing liquidity alters the cost of said liquidity and disprove your contention - but why bother to make that argument when there can't rea…

With zero Market makers, the exchange cannot guarantee I can walk in and sell at a reasonable price in a reasonable time.

With one Market maker the exchange can do so and so it benefits from being a effective place to trade - this is a huge advantage over any other exchange With a second Market maker, the exchnage gain is I believe orders of magnitude lower. Almost any Market maker is forced to maintain sensible spreads (else it is worth trading without them) so just one Market maker will offer expensive but not outrageous spreads. A second one brings only the benefit of slightly cheaper, which coma red to the benefits from the first are negligible

Re: What Business is Wall Street In?

#184

Post by lifeisstillgood »

yummyfajitas wrote: post #182
btilly wrote: post #181

Earlier quoted context omitted.

Companies can and do return money to investors through stock buybacks. To first order, it is the same as a dividend, except that only the investors who want money get it.

To first order, stock buybacks are equivalent to dividends. To second order, the IRS makes it complicated, as do regulators.

What - really double taxed ? Do you mean dividends are paid out of post tax cash, then taxed as income for the stockholder?

Just wondering

Re: What Business is Wall Street In?

#185

Post by Evbn »

fennecfoxen wrote: post #47
harryh wrote: post #21

Earlier quoted context omitted.

His main poing is wrong. High Frequency Trading makes trading stocks cheaper. There have always been market makers. They used to be expensive humans. Now they are cheap computers. This means that it now costs less for you to trade a stock.

I'm given to understand that the reason we have high-frequency traders being as crazy as they are is that there's a (government-mandated) rule where you can't price anything in increments of less than $0.01. 1 penny times hundreds or thousands of shares starts a minute starts to add up. So instead of being able to compete on price, market-makers compete on latency in order to be the one making all the monies, resulti…

The 1 penny used to be 12.5 pennies, not long ago.

That is yummifajita's blog, btw.

Re: What Business is Wall Street In?

#186

Post by Evbn »

paulsutter wrote: post #153
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…

He's making a distinction between trading and investment. The purpose of the stock market is raising capital to start/grow/sell companies (investment). The technical term for high frequency trading is "scalping" (yes, exactly the same word and meaning as ticket scalping). HFT traders like to think they "create liquidity", but I haven't heard a credible argument to support that. Divide the market into three categories…

If you place a limit order you can be the one stealing shoelaces. Or you can be your shoelace in exchange for getting instantaneous execution, just like you pay your ISP a shoelace for the megabyte of data used to send the order.

Re: What Business is Wall Street In?

#187

Post by Evbn »

tptacek wrote: post #119

It is really easy to convince nerds that Wall Street is fundamentally corrupt because of the exploitation of exotic sounding technology, like "high frequency trading". The reality is that the vast majority of the damage Wall Street inflicted on the US economy had nothing to do with electronic trading. Until someone invents High Frequency Lawyering, the bulk of the work involved in trancheing collateralized debt instr…

Tangent: DMCA takedowns are High Frequency Lawyering.

Re: What Business is Wall Street In?

#188

Post by dchichkov »

lifeisstillgood wrote: post #169
dchichkov wrote: post #160

Earlier quoted context omitted.

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

But. That's the thing. They CAN 'bugger off' home at any time. And often do.

If a particular market maker can't work for some reason with some particular symbol [there are thousands of symbols], at some particular time, he would just pause. And they often do.

Re: What Business is Wall Street In?

#189

Post by lmm »

djoldman wrote: post #88
lmm wrote: post #77

Earlier quoted context omitted.

>It seems like you take issue with that fact that stock price changes have become more correlated. Is it bad/wrong/unlawful/unethical that traders may want to sell(buy) stock A when the price of stock B decreases(increases)? It suggests the market is no longer performing its intended function of allocating capital to those companies that will use it most efficiently.

"It suggests the market is no longer performing its intended function of allocating capital to those companies that will use it most efficiently." Please explain how the trading of a company's stock changes that company's capital allocation.

A company's market capitialization is its capital allocation. It's reasonably common for companies to use their own stock when making big buys (such as other companies).

Re: What Business is Wall Street In?

#190

Post by lmm »

prodigal_erik wrote: post #101
lmm wrote: post #73

Earlier quoted context omitted.

>Its about what the bulk of the trading is: robots trading with robots without any regard to the stocks they are trading. The big whales are the mutual funds and they have to execute their buy/sells using special techniques of spacing trades out to try to not show what they are up to. Otherwise the HFT spots it (and they usually do) and then front runs all of the trades, just skimming pennies off. What use are they ?…

> someone willing to buy now for $50 beats someone willing to buy a second later for $51 We have misinvested countless millions on a system which produces the wrong answer, optimizing for millisecond latencies which benefit neither companies needing capital not investors providing it.

"We" didn't do anything; exchanges are largely a private free market. If you have a better matching algorithm, you could make an exchange that implements it.
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