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Comment by ChuckNorris89 | Hacker News Reader

The value of high paying jobs in finance doesn't come from activities that can be automated, but from stuff that can't like connections(which university you attended, who your parents are, who you play golf with and also insider trading) and soft skills(charisma, drive, looks, personality, ability to influence people, lying to them or throwing them under the bus).

For example, people like Elon Musk and Steve Jobs could pick up the phone and convince some very wealthy people to part with their cash on some investments that ML algos would consider stupidly risky.

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That largely hasn’t proven true historically. Whole swaths of high paying jobs in finance are gone or greatly diminished. From pit trader to analyst they’ve been replaced with computers.

Maybe the machines won’t come for venture/angels but I certainly won’t bet on it.

There’s a relationship between how liquid a market is and how easily it can be automated. There are very few humans on treasury desks, but M&A is still highly relationship driven. No algorithm is going to convince a CEO to sell their company or buy another.

Thats not an accurate view of what automating M & A is going to look like. The future is CRMs, more data transportability, and generally improved tooling will change the 1 deal/month capacity of your rain maker M&A team of 8 to a team of 3 doing 6 deals/month. You don’t need to replace the whole flow with computers to add automation.

Completely agreed, that liquidity spectrum still holds though. Closer to 100% of treasury trading than M&A can be automated, but tools can certainly increase the efficiency of the M&A process and reduce headcount if demand doesn’t grow in kind.

M&A is being increasingly automated too. There are simply too many companies out there to run off of relationships alone. Pre-merger due diligence is mostly automated already.

Exactly. SV likes to brag how their tools are disrupting collaboration, reducing the need for physical presence and increasing automation is making jobs redundant but big money deals are always done in person, with a handshake at a dinner in a fancy restaurant. No amount of tech will ever disrupt this ritual.

Relationships were central to pit traders as well. Doing deals in the steam room was a cherished & central ritual.

It didn’t save them when the bots came.

Who needs CEOs when it's machines all the way down? Presumably two or more AIs will have some method of reaching consensus.

Yet...

Won't the venture funds just own the machines and use them to concentrate wealth even better? Automation inherently strongly favors capital over labor, so whomever has the money when automation revolutionizes an industry is the one that makes the profits. With no value judgment intended, that's just kind of obvious right? Machines are capital and owned by someone who makes money from them instead of paying for labor.

"Automation inherently strongly favors capital over labor"

That's an odd thing to say. If machines and programs are capital, which seems reasonable, the more automation there is, the more capital, which drives down the returns and makes labor relatively more expensive. Isn't this obviously happening in a world where savings accounts pay 0.01% but it costs $120/hr to hire a plumber?

Maybe it would be better to say that the extremely low returns on capital favor automation, which favors the people who make the highest wages. That's obviously? not the same as capital vs. labor.

What I mean is that if we assume automation reduces the number of people required to complete a job, those that remain have a high pay rate. Agreed?

This continues as technology gets more sophisticated until the only people left producing things and making money are those that own the tools that do the job.

It only costs $120/hr to hire a plumber because of artificial barriers to entry and a guaranteed market. A better example might be a typist who previously had a solid middle class job taking notes and dealing with faxes because their boss didn't have a cheaper way to do it.

That is what I mean by favoring. Eventually Bezos just owns a machine that runs everything he controls and needs no employees. Eventually. Don't doubt he would if he could.

Your statement contains the core of it though -- systems that favor the people who make the highest wages are in an unstable equilibrium where eventually very very few people make all the wages.

>"The value of high paying jobs in finance doesn't come from activities that can be automated, but from stuff that can't like connections..."

relationships were expensive (and thus valuable) when people had to cultivate them through temporal and spatial investment. relationships between computer systems are not bound by those constraints and are thus fast and cheap (via markets and networks).

but more to the point, the value of a relationship in finance is really the highly valuable non-public information you can glean from them.

knowing who has (or will have) the resources you want at or below the price you want to pay for them (or vice versa) is the hard part. people (and the algorithms they create) will actively try to hide that information because it maximizes revenue.

Which may see a lot of competition from trustless systems which break these networks.

i read somewhere when comparing a financial advisor, managing one's portfolio vs an index fund - There was no discernible higher return with the advisor managed portfolio vs the index fund.

While this has been true in the past, because of this advice, huge amounts of wealth are now in index tracking etfs or similar passive index tracking funds. This essentially means that a larger and larger amount of the market is just “betting in the market”. If you want to spot where the next financial crisis will come from a generally good idea is not to ask “what looks crazy right now” (ie VC funding) but “what does essentially nobody question that is also a major change in mainstream investing”.

Because everyone is doubling down on investing on the status quo, don’t be surprised if a disruption to the status quo has far more dramatic impact than it would have 20 years ago.

the wrong assumption is that the large bets on ETFs are "wrong" for extended periods.

If the ETFs are incorrectly pricing assets because of blind buying, then an enterprising managed index fund could bet against it. Or, find some other arbitration mechanism. But of course, this doesn't actually happen, because price discovery _still happens_ even if ETFs account for a large percentage of trades (since price discovery can happen even with small number of trades).

And if ETFs is just betting on the market average, then the worst that can happen is they get average results. ETFs don't use leverage or debt.

An index fund typically performs much better over any meaningful timeframe because it has much lower fees.

But that's not the point here. The big money in investing isn't in beating the market, but charging fees, so fund managers only need to convince people to give them their money, they don't actually have to deliver results, provided they're working within the fund's stated goals.

If the trend continues of index fund growth as a percentage of the market, then the remaining active investors will gain an outsized influence on market direction. This is because index fund managers make very few trades on their own initiative, relying on market stats (trade history) to direct their own trades. Those market stats are built on the recent trades made by active investors.

If (when!) there is a correction, there will be analysis done on the cause (pick one or more of: student loan debt, sub-prime auto loans, trade war, something else) and then new investment strategies will be devised. And maybe passive investing will be shown to leave you vulnerable to a sea-change.

That's not true at all! There are many instances of managed portfolios greatly outperforming index funds. There are also examples of them greatly under performing. The crux is picking the right one - which is similar to the point you are making but not the same.

Has any managed portfolio outperformed SPY over last 30 years after accounting for expenses?

Sure, equal weight split between SPY, EFA, EEM, VNQ.

7.7% real return with 17.7% vol vs 7.1% real return with 17.1% vol.

Sharpe for equal weight: 0.435; Sharpe for SPY: 0.415

Yes, see Renaissance Technologies Medallion Fund* which earned their employees a 66% annualized return (39% after fees) over 30 years. It's one of the most well known examples out there.

[1] https://en.wikipedia.org/wiki/Renaissance_Technologies

I meant those open to the public.

Are you saying droids can't have charisma, drive, looks, personality, or ability to influence people?

Statement: I say we blast the meatbag, Master.

Nice try, Data.

That sounds like something Lore would say.

and insider trading

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