> FIFTY YEARS ago investing was a distinctly human affair. “People would have to take each other out, and dealers would entertain fund managers, and no one would know what the prices were,”
Was this, on the other hand, good?
If we take the doctrine that a market is a system for transforming information into decisions through the medium of prices (see e.g. Red Plenty), then using an increasingly sophisticated information system to do it seems only right and natural? And that it should reduce overheads of fund management?
(As an aside, that initial-cap "F" looks really nice and is a neat bit of CSS)
I agree - it is far better to have computers do it than run the market at "the clock speed of a babushka at a market stall" as Francis Spufford put it.
Although in this case it'd be the clock speed of a fund manager on a golf course.
The only decisions being made at the nanosecond level are whether to quote at 148.23 or 148.24. So yes, that’s enough time for trivial decisions like those to be made.
That comment was obviously a metaphor choosing "nano" as it's the coolest prefix, but since this is Hacker news I suppose now we have to fact-check a metaphor.
A Geforce 1080, at the high end of "normal" computing claims about 350 gigaflops. Divide through and we get 350 floating point calculations per nanosecond as an absolute maximum. Depending on what the numbers actually are and what method we make the human use (expert abacus users are surprisingly fast) that looks more like an hour's work for the human.
This just highlights how absolutely tiny a nanosecond is, though. Those speeds are only valid for numbers already within the processor; fetching from DRAM could be hundreds of nanoseconds. Also recall Grace Hopper's excellent video with a nanosecond of cable length, which is about a foot long.
> This just highlights how absolutely tiny a nanosecond is, though. Those speeds are only valid for numbers already within the processor; fetching from DRAM could be hundreds of nanoseconds. Also recall Grace Hopper's excellent video with a nanosecond of cable length, which is about a foot long.
This is exactly what I was intending to highlight. The speeds at which High-Frequency Trading operates are so ridiculously fast that even a computer can't put much "thought" (let alone more considered "wisdom") into a problem.
It sounds like you’d be surprised about how many industry leaders come from STEM backgrounds. If you take a headcount of the partners of all the quant firms that have been profitable over the last ten years, I’m not sure if STEM nerds would be the majority but they’d certainly make up a significant portion.
I’m pretty sure the Rentech and DE Shaw founders were mathematicians. I’ve heard Simons in particular is stupid good at math and there are apocryphal stories to that effect. Wouldn’t surprise me if other quant funds were also ran by the math-heads themselves as well
The problem is the not so rich don't want to play or can't afford to play. I bet I do better than most traders out there and have been calling the market correctly for a significant period of time but I can't get enough money to move into the billion dollar range. Others who have the money aren't willing to risk it because they have made it using other methods are more likely to continue reinvesting in that, i.e. real estate.
Overall, it doesn't sound to bad. What caught my attention was this line:
> Another gripe is that traditional asset managers can no longer compete. “Public markets are becoming winner-takes-all,” complains one of the world’s largest asset managers. “I don’t think we can even come close to competing in this game,” he says.
Individually, this doesn't really say much. But various sectors becoming "winner-takes-all" seems to be a trend right now that concerns me. Some say it is just a trend, a new age of conglomerates, and it wont last. I hope they are right.
Historicaly, this is not the first time we see that trend. I do have the theory that some technologies inherently lead to larger enterprises, while others lead to small ones. Think about steam vs. electrical motors for a quick image.
The internet seems to be of the first kind, but since it has a large social component, I wouldn't make any large bet on this property holding forever.
There is also an unrelated effect that the same technology tends to enable larger and larger enterprises when it matures. But this one seems to be much smaller, and not really relevant right now.
If the stock price is contrived, it's contrived, and the only difference between humans arriving at a price slowly and computers arriving at it quickly is how much time and money gets consumed in transaction costs.
If a company wants their stock to have a more stable price, they need to make the price less contrived, for instance by paying dividends that anchor the price to something tangible.
Well, is this point of raising awareness of this sort of thing just to say "these things are bad"?
Often it's helpful just to say "Let's discuss the potential downsides so we can get mechanisms in place to protect society before they get cemented into place."
> FIFTY YEARS ago investing was a distinctly human affair. “People would have to take each other out, and dealers would entertain fund managers, and no one would know what the prices were,”
Was this, on the other hand, good?
If we take the doctrine that a market is a system for transforming information into decisions through the medium of prices (see e.g. Red Plenty), then using an increasingly sophisticated information system to do it seems only right and natural? And that it should reduce overheads of fund management?
(As an aside, that initial-cap "F" looks really nice and is a neat bit of CSS)