Sure, sorry I fell behind; I'll try to catch up!
Feel free (anyone) to start short conversations here based on what you find interesting, or if something really strikes hold of you a new thread is cool. A lot of this stuff is good water-cooler talk.
2017-03-28
https://www.bloomberg.com/view/articles ... cious-edge
Neural networks.
I enjoyed this diagram of how hedge funds use neural networks to find trading signals:
complex, simplified...
Weak-form market efficiency tells you that, in the long run, you can't make any money doing this, but that doesn't mean that you can't make a nice living while waiting for the long run to arrive. What weak-form efficiency is really telling you is that the computer models will gradually get better and better at mining historical prices for information about future prices, until there's no more useful information to be squeezed out of that data...
One problem with all of this data is that it is hard to know if it will predict future stock prices. That is I suppose where the neural network is useful. But a bigger problem is just recognizing it as data, and then getting it...
Maybe that's why a lot of these top MIT kids are getting hired into finance? They are the ones that know all about those gosh-darn computer black boxes that give you "Money!" Combine that w/ probability theory and you have ways to make Real Money!
The last bit from the quote is why I think companies that already have the data are in the best position to profit via present/future price arbitrage. But for now those companies just sell ADs. If only they had a finance/trading/investment/insurance division run like GS/hedge fund, they would be making way more buku bucks.
Edge.
Even if Icahn did leak his plans to Walters, it's not at all clear that that would be illegal. This drives people crazy, but: It is perfectly legal to trade with inside knowledge of your own intentions. Not only that: Your intentions are your business, and if you want to tell your buddy about them so he can trade too, you can go right ahead. Trading on material nonpublic information is only illegal if that information was obtained in breach of a duty to someone.
That's not legal advice...
They make it seem like Walters liked to trade when he knew things that no one else knew.
Which you and I know is fine. Trading when you have information that other people don't have is the definition of informed investing. It's what makes people spend millions of dollars on analysts and research and corporate access and neural networks. The purpose of capital markets is to incorporate information into prices, to create incentives for people to find out information and then trade on it.
Nice. I wonder how the legal advice would differ? Maybe one advantage of taking a company public instead of staying private (popular topic, mentioned before in this thread) is that it gives insiders more opportunities to profit from information asymmetry.
Me yesterday.
Investment managers might genuinely want to avoid non-voting stocks like Snap's, but have no choice if it is included in the indexes. As the world becomes more indexed, the index providers will increasingly become the main arbiters of corporate governance standards. Which is kind of a weird role for them?
So folks that make indexes will have some new powers? What if Vanguard and BlackRock start to define their own indexes
2017-03-29
https://www.bloomberg.com/view/articles ... mer-relief
BlackRock.
...fundamental equity mutual-fund managers should be at least as worried about their jobs as truck drivers are.
But in another sense this is pretty weird. Investing is not really about finding patterns in a bunch of numbers. I mean, that is what it's about, but not at a deep level. Deep down, it's about finding good ideas, about understanding what humans will want and who will be best situated to give it to them...
But the computer doesn't have to. The market does that: People -- entrepreneurs and lenders and venture capitalists and, eventually, public-market stock investors -- make those evaluations, and express those evaluations in the form of prices, and ultimately those prices become the numbers that the computers examine to find patterns. The market is an amazing computer for turning all of those people's individual decisions into aggregated numbers. It just turns out that, if you plug an actual computer into the market, it makes better use of those numbers than the humans do.
But those trading computers will have access to way more capital than active trading humans will, won't they? Hello Black Swan. He had just said in a previous post:
>all this aggregating of rationality leads to irrationality, that individually rational decisions by a bunch of computers tend, when aggregated by the market, to lead to collectively absurd results.
> what humans will want and who will be best situated to give it to them
Ever heard of Skynet? Do people think Musk is joking about the singularity? Computer systems will have rights, purchasing power, wants, etc eventually. I mean, aren't corporations already people? It's only a matter of time until machines are people too. I haven't heard of a convincing argument that precludes machines from being people (other than non-practical semantics). For better or worse, advent of Bitcoin (fungible digital value) pushed all of this stuff closer to viability.
Consumer relief.
...it is harder to explain how the banks harmed the borrowers by giving them money that they didn't pay back.
Nonetheless there was a strong intuition that the borrowers had been harmed, and so when the big banks reached their big mortgage-fraud settlements with the government, those settlements tended to include not just fines and repayments to investors, but also lots of money designated for "consumer relief."...
This generally sensible idea ran up against some practical problems. For one thing, some of the banks that did bad mortgage things never actually made mortgages... they didn't have any consumers to relieve...
But there's another practical problem, which is that the financial crisis was almost a decade ago. There just aren't that many busted subprime loans from 2007 that Deutsche and Goldman can buy up and modify. So, reports Matt Scully, Deutsche has another idea: It is considering "indirectly funding new loans to subprime borrowers."
...idea was that the big banks harmed consumers by giving them subprime loans, and should now help those consumers by writing off some of those subprime loans. Deutsche Bank might instead atone for its role in the subprime crisis by making new subprime loans.
More like comic relief.