Earlier quoted context omitted.
The market impact point doesn't cut both ways though, and it's crucial.
> institutionally sized portfolio Is the part that cuts both ways.
Not in the ways that matter to the point I'm making
What to know about the stock market (2007)
351–360 of 372 posts
Re: What to know about the stock market (2007)
#352Re: What to know about the stock market (2007)
#353Earlier quoted context omitted.
> Let's naively assume that you actually can pick stocks. At $10Bn - you need to pick more stocks - otherwise you would drive up the price too much in buying that much of the stock This refrain is common enough, but I don't think it really bears out in the math. Elon just sold $16B worth of stock and the price barely budged. If you've got enough alpha to work with every beta seller out there will hop off and it's wel…
> Elon just sold $16B worth of stock and the price barely budged. I could be wrong, but my understanding that such huge trades are not put on the market the normal way, but run through big investment banks that are able to use different techniques to avoid harming the stock price. For example, they can exchange the shares with hedge funds, ETFs/mutual funds, pension funds, and they can do the trades in batches over s…
Elon's sale arguably brought down the price of Tesla considerably. He pretty much announced the sale at the peak - it's down almost 40% from that - when the s&p isn't even down 20%.
But, anyway, a wealth manager investing billions would do the same thing in reverse to buy.
And, still, it would drive up the price unless done over a long period of time - and since timing is important - this isn't really an option.
Thus, why it is harder to invest $10Bn than $1M.
Re: What to know about the stock market (2007)
#354Earlier quoted context omitted.
I think houses mostly do depreciate in value. The land underneath them does not and this can often mask the former. I live in a nice part of my city. My house is 100 years old, has terrible insulation, very old retrofit wiring, and needs constant maintenance to stave off decline. The house, with all the upgrades over the years, is likely worth about what it was when built. The land underneath it is a lot more valuabl…
Seems like semantics to me: you can't buy a house without essentially buying land. If you could, I absolutely would. The fundamental problem here is not one of economics, but of politics. You can't live in a stable, dignified manner without paying to be part of a state-run monopoly (land ownership), so everybody who can does, so land titles (note the word) become absurdly expensive. There is no real connection betwee…
Technically it's possible: House Moving. But perhaps not worth in most cases.
Re: What to know about the stock market (2007)
#355Earlier quoted context omitted.
The alternative schemes he's referring to are batch auctions, which don't eliminate price-time priority per se. What they do is bucket time priority into discrete chunks, which eliminate a certain class of high frequency strategy that probably isn't particularly economically productive. The problem with batch auctions relative to continuous time trading is that that discreteness forces market makers to charge larger…
Thanks for the insight, would appreciate any recommendation on where I can read more about this. I'm curious what would attract market makers to this sort of exchange if it exposes them to more risk. Unless they can charge a premium for taking on that risk. But then why would traders want to pay more when they can get better prices (from tighter spreads) on today's more popular exchanges?
> Thanks for the insight, would appreciate any recommendation on where I can read more about this.
https://www.amazon.com/Trading-Exchanges-Market-Microstructu...
This is sort of the standard textbook on how exchanges and markets work, and has a nice discussion of the tradeoffs inherent in call auctions vs continuous time trading.
If you really want to get deep and are comfortable with math, this paper:
https://www.math.nyu.edu/~avellane/HighFrequencyTrading.pdf
explains the general framework market makers are using to make decisions.
> I'm curious what would attract market makers to this sort of exchange if it exposes them to more risk. Unless they can charge a premium for taking on that risk. Ultimately, market makers are service providers. They are selling liquidity to people, and they get compensated for that. What that means is that they will go wherever their clients go. And they wouldn't necessarily make less money in a higher spread regime, larger spreads mean bigger margins for the MMs. I think they probably would overall make less, because volume would decline so much, but it's just a little more complex than more risk == bad.
> But then why would traders want to pay more when they can get better prices (from tighter spreads) on today's more popular exchanges?
It's a little complicated. I mean, the sort of facile answer is: they wouldn't, and don't. We have a free market, if anyone wanted to they could start one of these up right now.
A slightly better answer is that some clients would prefer it and some wouldn't, and there's a reasonable argument to be made that the ones who would prefer it are more important to healthy market functioning. Specifically, it'd be much better for larger asset managers who research stocks and make careful picks based on rigorous analysis.
Right now, those asset managers, who are the people that really make the markets efficient, are being statistically frontrun by HFTs, both market makers and others. That is, some MM notices someone buying large blocks in a pattern consistent with one of these smart asset managers, and they label this "toxic flow". Backing up slightly, market makers want to sell to dumb money.
Consider a world where the only trades that occur are by "smart money". Someone only trades if they know the stock is going to go up or down, and there is no other trading activity aside from this. In this world, the MMs would make zero money, because they'd be constantly getting "adverse selected". MMs make profits roughly in proportion to the overall quantity of dumb/smart money. They make money when lots of trading happens, but the price doesn't go anywhere.
Getting back to the main thread, MMs are constantly trying to identify "smart money", and when they find that smart money, they either re-center their spread in the direction the smart money is trading, widen their spreads, or stop providing liquidity entirely. Continuous time trading makes it considerably easier to separate smart and dumb money than a batch auction would, and this means that overall these smart managers are making lower profits than they otherwise "should".
The flipside of this though is that these tactics actually improve the price that retail traders get. This is why Citadel buys Robinhood's order flow, and then offers them better prices than the open market does. They can do this because they "know" that all of the Robinhood flow is dumb money, and consequently they can safely tighten their spreads for those users.
Re: What to know about the stock market (2007)
#356This is a great article that explains markets (not just the stock market really) in an easy to understand way. The one thing I believe people should know about the stock market is: There are people with more capital, time, and knowledge than you who will consistently beat you. Picking individual investments is mostly a sucker's game. Buying tech stocks and/or crypto in the last couple of years has been a consistent e…
Why is this the top comment? It is just an opinion without much analysis.
Yes, there is gambling but there is also investing, knowing the difference is key.
Re: What to know about the stock market (2007)
#357Earlier quoted context omitted.
Europeans can have the luxury of not worrying about investing since many European countries offer livable pensions (for now…the demographic future for this isn’t looking so good). However, this isn’t as great as it sounds. While the European model for healthcare and education is better, their pension schemes are arguably a much worse deal than what Americans can have. In Europe, you’re basically paying the government…
> There’s a surprisingly large amount of middle class Americans who will retire millionaires This seems like a serious bug in the system, doesn't it? Why would old people retire as millionaries while young people struggle working long hours and can barely save anything?
Old people can’t work. They’d better be rich enough to sustain their lifestyles on investment income, otherwise they’d just die.
Re: What to know about the stock market (2007)
#358This is a great article that explains markets (not just the stock market really) in an easy to understand way. The one thing I believe people should know about the stock market is: There are people with more capital, time, and knowledge than you who will consistently beat you. Picking individual investments is mostly a sucker's game. Buying tech stocks and/or crypto in the last couple of years has been a consistent e…
People keep telling me this, but I keep beating the market. It's been 20 years or so of applying very basic reasoning and getting ahead. 1. Commodities are bad long term bets because technology gets better. I remember people talking my ear off about peak oil and then the US turned into a net-exporter. Short term inelasticity, yes can sky rocket prices; but long term prices go down. 2. Physics based thinking. I knew e…
There is so much wrong in this post.
> People keep telling me this, but I keep beating the market.
"Humans keep telling me it's hard to predict football games, but if you just squeeze your tentacles up and down enough you will get it right as I did"
-- Paul the Octopus, who predicted all world game results
There are millions of people trying to predict the market. Of course there will be people that did good, and these people (such as yourself) will all be convinced that they got it right for a reason.
But individual experiences mean nothing against the law of large numbers. You yourself have no way to know whether you're good or lucky, unless you show us an algorithm that consistently achieves the results you claim to enjoy.
Remember these simple facts:
- the less you trade, the further away you are from your real average predictive power. If the game is a coin toss and you play 2 times, there is a 25% chance that you get a 100% success rate, and go to HN to boast about how guessing a coin flip is easy. Try to keep that performance after 5000 games and it's an other story.
- Are you able to compute your idiosyncratic returns correctly? Can you show us that your portfolio returns, once residualized on sector, country and beta, are actually any better than a random pick?
- You pretty much only talk about good old common sense fundamental quality / value, which is far from being a major part of equity returns. You reasoning will work for one stock, and not for an other one. A sime value based strategy as you describe is vastly negative on a 20 year period - in absolute terms (not even compared to the market).
- You seem to have no understanding of diversification, and idiosyncratic risk. Companies can fail for an infinite amount of reasons. The less positions you have, the more sensible to "single company failure risk" you are exposed to. Very good companies, with solid earning and projections, did fail on the past, for reasons such as "top management scandal", "defective line of product", "banned from operations in a country", etc etc.
To anyone reading this comment, just remember that 90% of stocks returns do NOT come from the company itself. It comes from the drive of the market or sector as a whole. By investing in broad index funds you lower your specific risk, and get overall exposure to what drives the vast majority of the stock returns.
Re: What to know about the stock market (2007)
#359Earlier quoted context omitted.
> livable pensions This is a myth. People struggle on state pensions throughout Europe, but for some reason young Americans idealize everything that comes out of Europe. In Germany(a country of 80 mil), the average pension is $1000 once you get to 65. In France it's not much more. The social security in the US beats that, plus you can usually afford a private pension, because the government doesn't take 50% of your p…
Are you talking about the minimum pensions only? In France, the average pension is 1393€ (~ $1574) [1] Also the retirees purchasing power is higher than the working population [2] Don't get me wrong, there are still too many retirees with too little money in France. But on average, the retirees are doing OK compared to the rest of the population. [1] https://cleerly.fr/retraite/retraite-moyenne [2] https://www.lefiga…
I was commenting for the Americans. In the US you get a "meagre" state pension (social security) and people believe that Europeans have so much more...well that US state pension is on average $1500. But Americans have in general much better private funds, because they have lower taxes.
Before you ask, healthcare is free for retirees.
Re: What to know about the stock market (2007)
#360Earlier quoted context omitted.
You realise there are proprietary trading firms with algorithms making billions of $ every year just trading stocks at high frequency, right? If anything they actively avoid trading against themselves and seek out opportunities in markets where retail investment is still at high participation.
Yes, they make a few billion between them in an ultra-competitive, expensive to compete in environment. My wording wasn't the best, but what I meant is that HFT firms only compete with other HFT firms. They're basically all battling to offer the cheapest service possible to other market participants, and can offer even better prices to retail due to the non-toxicity of the flow. Virtu has a market cap of what, 6bn? C…
Most prop trading firms arent public. Rentec have something like $150bn under management and are making 20-40%/yr return. If they had a public "market cap", they'd be huge