I used to do research in this industry and I can tell you that, actually, there are a lot of opportunities for novel research based on huge financial details which haven’t been noticed.
What is your experience, that you write off my own experience as well as entire industry, as being illegitimate? Based on another comment you made in this thread it looks like you’ve also worked in the industry, so did you seriously never come across legitimate research efforts or are you just not mentioning those?
I don't know where you worked, but please stop perpetuating the myth that everything in finance is shady business in smoky rooms. Contrary to what you're saying, a lot of the alpha generated at the best firms comes from novel approaches to data analysis, not the uniqueness of the data itself.
There is real ingenuity in research which translates into consistent alpha. I'm not going to argue it's literally the maximally valuable way to generate returns in finance, but you're dismissing it entirely. Not everything in trading is relationship building and trying to curate data no one else has.
There is room to combine otherwise public datasets together to find novel insights, and this is frequently done.
Equities is being run over by ETFs, none of these funds have that much alpha, HFT was just some stupid inefficiency firms realized that could do in like 2008, by 2019, HFT is barely profitable. Whenever these firms make money from fast trading, what they are really doing is stealing money from pension funds and peoples 401ks. Clipping and front running trades shaves a little from the price and puts it into the pocket of some "genius" at Two Sigma. You can shout all you want about how intelligent these people are, but the whole thing is crooked. Secondly, watch how fast these places go out of business when the market tanks. Massive bull runs and "prestige" have these guys claiming to be kings of the world, but really, the financial industry is about raising a ton of investment money and figuring out how these fund managers can siphon it off into their own pockets. Which is why ETFs are so popular now.
When Two Sigma starts making too much money, the sec starts knocking on their door. Because its obvious theyre exploiting the market and extracting wealth. So they dial it back, and keep just some. This kind of thing is never talked about in public, but it happens all the time. Constant negotiation between which trades are ethical between computerized traders and the US government. All that 50 Billion in wealth really came from Goldman. Go look on linkedin, all the top people there jump between TS and Goldman.
I could go on and on about the scam of quant, I know the industry intimately.
This is entirely false. I'm not sure where you think you're getting your information from, but it is not accurate. Most highly successful quant firms didn't get that way by raising a ton of assets. They got that way by turning a small amount of seed money into a lot, via returns.
> When Two Sigma starts making too much money, the sec starts knocking on their door. Because its obvious theyre exploiting the market and extracting wealth. So they dial it back, and keep just some. This kind of thing is never talked about in public, but it happens all the time. Constant negotiation between which trades are ethical between computerized traders and the US government. All that 50 Billion in wealth really came from Goldman. Go look on linkedin, all the top people there jump between TS and Goldman.
This is also just absurdly untrue. Nobody is knocking on Renaissance's door when they make too much money, if they did, they wouldn't have been posting the kinds of returns that they do.
You're talking like you're familiar with the industry, but so am I. And basically everything you've said here is just completely wrong. Maybe you worked at a bad firm or something, I don't know. But there are players here who are consistently making large amounts of money from statistical arbitrage, and high frequency trading that has nothing to do with exploiting inside information. And no, the SEC is not knocking on anyone's door for "making too much money".
https://www.accountingtoday.com/articles/rentechs-billion-do...
Every model has significant biases and weaknesses. If a model survives more than one up or down cycle, it's generally a sign that the model is based on leaked data and not on the actual analytic prowress of the firm involved.
Oh, you mean like LTCM?
But I'll humor your implied point: LCTM's failings have nothing to do with the core thesis I'm rebutting, which is that the only value in financial trading is provided by shady backroom dealings.
And Simons is 81 years old...
These are not mutually exclusive.
When presented with the opportunity to do either insider trading (and easily getting away with it) or paying for novel research, which will most managers choose? Why not choose both?
> What is your experience, that you write off my own experience as well as entire industry, as being illegitimate?
You hardly need this one person's data point. The massive success of passive investing is all the evidence anyone needs.
(I also worked in Wall Street just before and during the financial crisis, and my experience is consistent with the industry being more fraud than not fraud. I absolutely am not implying that you yourself didn't produce value or that no one is honest, but value/honesty are not the norm.)
I don't like how his comment got flagged. It's almost like burying a whistleblower.
Executives have been leaking internal data to trading firms for decades. The trick is for the analyst to come up with some plausible explanation for why they reached the conclusion to buy (or sell), which is generally easy to do.
Great job wall street! Thanks for all your valuable contributions to humanity.
Tesla has had negative cash flows for 5 full years until 2018. It posted a profit of any significance for the first time in a long long time last quarter. If you look deeper, you know that everything is wrong financially with the company despite Elon being celebrated as a genius engineer (debatable IMO, but not relevant). The stock just hit all time highs yesterday.
Apple started the year by lowering revenue guidance. And they also folded their fingers and flipped the entire financial analyst industry one massive bird when they said they wouldn't release iPhone sales numbers (their most important product and probably 99% of revenue / margin / income growth factor). Stock is up 104% this year.
So yeah, the entire edifice is made of shit and only the ones closer to the industry can see it. Even people working inside don't benefit from this shit moat for the most part and wish it gone.
It's Finance 101.
When in 2014, we set out to evaluate tesla, no one in the industry saw 5 full years of negative cash flows. If they did, they certainly didn't show it in their models. And the stock price certainly made no sense if people with shorter time horizons were holding onto it.
So one of 2 things is true:
1) the market is all knowing and it sees out to a time horizon where tesla would have positive cash flows and discounts it absolutely perfectly. In which case, the market didn't see Bear Stearns or 2008 coming, so spare me the clairvoyancy pitch.
2) The entire thing trades on fairy dust because vast portions of the market work on self fulfilling prophecies of both big money brokers, and idiot retail i.e. in both cases, they believe the stock will go up based on false assumptions and even worse models and hold on for dear life as the fed pumps the market into the next euphoric orgasm.
2) We have a name for this hand - the federal reserve of the united states of america. If you saw the last Mr. Robot season, there's an episode where Mr. Robot says "behind every great fortune lies a great crime, this is the corporate motto of these United States". He was only slightly wrong. Behind all great fortunes since the advent of central banking lies the hand of the federal reserve.
The money movers buy the "anonymized" location data of the whole US population, de-anonymize the CEO (easier than for a regular person), and then see what his movement says (taken a plane to a competitor office? merger perhaps?)