Hacker News Reader

Comment by conbandit | Hacker News Reader

While there is some amount of speculation, it represents a small portion of the entire financial space. If you sincerely hold this view, you should take a closer look at the purpose of financial instruments and markets.

View on HN

I do not believe this counters the OP's point. While the core purpose of financial markets may be beneficial vehicles like hedging and price discovery, the fact that the pragmatic outcome of the law is to leave wall street as one of the only outlets for "legalized betting" cannot be ignored.

There is a sister post that in trying to argue against this only seems to support the point. "a house that always wins"; as has been echoed on HN ad infinitum, _don't stock pick_, (Edit; child is correct, this is more about day trading, but the broader advice probably still holds to some extent) because if you do, you're the dumb money handing it over to the HFT firms. So even if the intent is not for wallstreet to be a gambling house, if it looks like a duck and quacks like a duck and benefits from regulatory capture like a duck...

For those who believe in efficient markets, or markets that are rigged by hyper-intelligent people against the average investor, I'd like to call their attention to a bit of history recalled by Matt Levine in his column today:

"Google announced that it was buying a private company called Nest, for instance, and the entirely unrelated stock of Nestor Inc. (ticker: NEST) was up 1,900 percent"

To be precise. I do not in any way believe in perfectly intelligent or omniscient markets. I do believe that large professional financial entities have mastered short-term trading to force things such as margin calls and other behaviors that an individual such as myself has no real tools against. This is what I mean when I say "the house wins" not that the market is in any way always correct. I assert that in any situation where an individual could make a bet, they are inherently competing in an uphill information-and-tool-asymmetry battle against far better equipped entities.

This explanation should be very familiar to those who have frequented groups like bogleheads that drink the indexing koolaid. (I admittedly do, as one could probably tell from the above)

I wonder if someone could use this phenomenon to get away with insider trading...

Gambling in the prediction market for the time-value-adjusted expected profits of a company is allowed due to the historical fact that stock markets used to be the way to raise capital for companies. I have only seen Tesla do this in the last 30 years (I'm sure there are others, but it is rare for a list company to actually sell stock to raise capital for building things). We should allow gambling in other prediction markets for things we would like to know about. Say the average surface temperature on Earth in 2100.

> _don't stock pick_, because if you do, you're the dumb money handing it over to the HFT firms.

I think you mean _don't day trade_. HFT is a tax on changing your bets. If you pick a stock and stick with it for years, it's negligible.

It still might be good advice not to stock pick, but I don't think HFT is the reason.

Agreed. Like saying financial institutions gamble on lending money to customers.

I think the correct contrast would be legalized state lotteries.

Reply on news.ycombinator.com