Geeks trump alpha males on Wall Street
reuters.com
Geeks trump alpha males on Wall Street
1–10 of 90 posts
Re: Geeks trump alpha males on Wall Street
#2Sure they're making money particularly from being smart, but would someone be able to explain to me how making money from money contributes to something worthwhile to society?
Is it just that they're being that much quicker in smoothing out prices of stuff on the stock market?
I'm not being snarky, would just like to know.
Another slightly different topic: the trend during the Bush boom years is that the so-called 'smart people' graduated to the financial industries which is where all the money was. This is opposed to the people who I regard as smart and gutsy trying to do something new and of probably greater benefit to other people such as starting your own internet company.
Is it just that it's easier to make money from money as opposed to doing something that's probably more helpful but usually pays less?
Re: Geeks trump alpha males on Wall Street
#3While not without its benefits, the stereotypical technical trader reminds me of a parasite. The fact that people focus on "taking profits off the table" through volatility disgusts me personally.
Whatever happened to value-driven investments...
Re: Geeks trump alpha males on Wall Street
#4Sure they're making money particularly from being smart, but would someone be able to explain to me how making money from money contributes to something worthwhile to society? Is it just that they're being that much quicker in smoothing out prices of stuff on the stock market? I'm not being snarky, would just like to know. Another slightly different topic: the trend during the Bush boom years is that the so-called 's…
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Re: Geeks trump alpha males on Wall Street
#5Sure they're making money particularly from being smart, but would someone be able to explain to me how making money from money contributes to something worthwhile to society? Is it just that they're being that much quicker in smoothing out prices of stuff on the stock market? I'm not being snarky, would just like to know. Another slightly different topic: the trend during the Bush boom years is that the so-called 's…
I think that's a little high horse. Most "internet" companies don't bring us any new blow out technology or societal benefit. Twitter for example is basically just a way for narcissist to talk about themselves. Not that there is anything wrong with that but to claim an Internet company is a better way to contribute to the greater good than is stock trading is just silly.
Re: Geeks trump alpha males on Wall Street
#6Sure they're making money particularly from being smart, but would someone be able to explain to me how making money from money contributes to something worthwhile to society? Is it just that they're being that much quicker in smoothing out prices of stuff on the stock market? I'm not being snarky, would just like to know. Another slightly different topic: the trend during the Bush boom years is that the so-called 's…
I think that's a little high horse. Most "internet" companies don't bring us any new blow out technology or societal benefit. Twitter for example is basically just a way for narcissist to talk about themselves. Not that there is anything wrong with that but to claim an Internet company is a better way to contribute to the greater good than is stock trading is just silly.
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Re: Geeks trump alpha males on Wall Street
#7Sure they're making money particularly from being smart, but would someone be able to explain to me how making money from money contributes to something worthwhile to society? Is it just that they're being that much quicker in smoothing out prices of stuff on the stock market? I'm not being snarky, would just like to know. Another slightly different topic: the trend during the Bush boom years is that the so-called 's…
I won't defend all of finance / trading, but maybe this analogy will satisfy you.
Think of sports tickets. There is massive inefficiency in the primary market, meaning tickets you buy directly from the arena or on TicketMaster. One inefficiency comes from all the season ticket holders who skip the majority of the games and only go to the ones they actually want to see.
We can fix this inefficiency on a secondary market (the scalpers, StubHub, etc). A scalper might make a decent take by finding season ticket holders and buying the unused tickets. Then, the scalper sells the tickets to fans who waited too late to buy (or won't pay full price).
Now we think the scalper is evil, because he just made money without "adding value." Except he did add value... the season ticket holder and the last-minute-fan wouldn't have found each other without great effort. Both ended up happier than if the scalper didn't exist. Also, the scalper takes on some risk... he guaranteed the price he paid to the season ticket holder, had to hold the ticket, and then determine the correct time to sell. If he held the ticket too late (or got too greedy), the game would begin and he'd have a worthless ticket!
We also need to somewhat regulate scalpers because if they have too much of an impact, they can seriously distort and manipulate prices (a very wealthy scalper can buy all the tickets to a popular game and sell them all at 10x the price).
This analogy isn't perfect for high-frequency trading or all market making, but I hope it shows why arbitragers both add value and reduce risk yet seem evil to all the participants.
Re: Geeks trump alpha males on Wall Street
#8 If it doesn't get out of hand, program trading is a good thing. It allows the value and small investors to get in and out of the markets smoothly and cheaply. As an example,
moving to electronic trading killed the option market makers
life style by dropping the spread between bid and ask to almost nothing. The problem, it will probably get out of hand.
Re: Geeks trump alpha males on Wall Street
#9A bit off topic, but I find what the 'geeks' are producing to be the most interesting part of this article. When the next financial mega-crisis erupts (note - financial, not economic - that part comes next), perhaps this will be the reason:
John Malitzis, vice president of market surveillance at the New York Stock Exchange's oversight body, told a conference in September that he has seen examples, both in U.S. markets and elsewhere, of computer algorithms malfunctioning. He calls them "algos gone wild."
Couple 'algos gone wild' with the fact that 60% of trades (article's figure) are HFT algo trades and you have the potential for absolute chaos in the markets. Many of the algorithms mimic each other (crowding into the same trades). Some algos are programmed to essentially hunt down other programs and exploit things they expect them to do.
As the article states, the high frequency traders have moved beyond equities into options. Imagine if we see a global cap and trade scheme implemented, with a marketplace for carbon credits. Could algos 'gone wild' drive the price of carbon credits to some absurd extreme (think the speculation-fueled oil bubble in summer 08, but in reverse) that dramatically influences how much CO2 our collective industries emit?
Re: Geeks trump alpha males on Wall Street
#10Interestingly enough, Goldman Sachs is reporting that quant strategies may be becoming overcrowded, yielding negligible returns:
http://www.reuters.com/article/rbssFinancialServicesAndRealE...
I do believe there is some truth to this, a couple years ago during the "quant bloodbath" we saw a major down swing across almost every quant fund, because they were all employing generally the same strategy.
At the same time, with the trend towards more complex markets, quants will continue to rise in demand at Wall St. firms (especially since their profits dwarf those of the IBanking division). However, that does not mean you have to be a financial engineer to crank out market beating returns. Traditional value strategies will probably continue to be just as good and beat the market over the long term.