I've been on quite a few trading floors in my former life. Three of my oldest, biggest clients, one is an investment bank, another a very large brokerage and the other one of the best known mutual fund companies.
Ok - phil was a trader for many years - in the oil pits - according to him - maybe he lied.
I also have two close friends who were Nasdaq MMs for many years.
Wonderful! Phil says becoming a market maker/specialist is like mafia type business - so since you know some personally can you tell me if the philster is lying or not - can just anyone become a MM/specialist? Phil may be lying - I would just think if he told so many lies like that - he would be sued into oblivion - but he is still on the air telling these lies - will you clear it up for me? How do the market maker/specialist firms get to become such? Can you and I become mm's/specialists.
If I want to get either of them laughing hysterically, I just have to mention some of the stuff that I hear on SI and elsewhere about how market makers and specialists manipulate prices to shakes shares loose or some other silly notion.
Whew - i dont know Grace - I post link after link from dow jones newswires of IPO laddering, CEO crookedness, regulator oversight crookedness, fannie crookedness, jp morgan crookedness, etc etc but the mm's/specialists are the devout honest holy men in this sea of sharks - I will give you the benefit of the doubt if you can convince me how these guys are so much better MORAL high ground than the other crooks.
The MMs and specialists win on balance because they own the opposite of the public action which has a negative expected return. They have a positive expected return.
Yes I just posted about something similar to this for MOOMINOID:
Message 22381713
Here are Mr. Simons's numbers: from 1990 to 2004, Renaissance's primary hedge fund, called Medallion, has delivered annualized returns of 33.21 percent. (The Standard & Poor's 500-stock index has returned, on average, 10.98 percent during those same years.) Since the end of 2002, the fund, which has $5 billion under management, has disbursed $4.9 billion to its investors -- with another $1.5 billion to be delivered at the end of this year.
And these returns are after Medallion's 5 percent management fee and 44 percent share of the profits -- surely the highest hedge fund fees in the land. Medallion's returns, and its fees, have helped make Mr. Simons a very wealthy man, with a net worth that Forbes estimates at $2.7 billion.
When I showed Mr. Simons's returns to a hedge fund friend, he looked startled. ''Nobody has numbers like those,'' he said. But here's the real eye-opener: no one outside the firm's 200 or so employees has a clue how he does it.
Medallion, you see, is a quantitative fund.
Well, this is pretty interesting, too. . .
HERE'S what we do know. Medallion's portfolio contains literally thousands of stocks and other financial instruments that it trades in rapid-fire fashion. The firm's scientists are constantly searching for repeatable patterns, and other signals, in the enormous amounts of data they compile. The computer models they devise tell them when to make trades based on those signals.
As Mr. Simons put it -- and this is about as specific as he would get -- ''Certain price patterns are nonrandom and will lead to a predictive effect.''
Of course once computers find such a repeatable pattern, they essentially destroy it by trading it . . . while other computers, stock pickers, and screeners compete with them to do the same. Quickly the "repeatable pattern" is not only gone, but sometimes replaced by a new pattern that is 180 degrees out of phase.
The real question is whether you see stock picking as a beatable "game" - with a correct set of moves and rules that can lead to victory. It is virtually the same as asking "Do you believe in Technical Analysis as a useful investing tool?" Is there something inherent in the data that will predict the future? A head and shoulders pattern? Candle-stick charting? Volume/Price analysis? Or do day to day management decisions, business climate, productivity, creativity, product development, political climate, unexpected disasters and luck make the difference? Future cash flow and earnings from a super-computer? I doubt it . . .
It seems to me that the existence of computers and high-speed information transfer is exactly what is making the markets more efficient. Stocks trading on different markets now trade in lock-step BECAUSE of computing and the global linking of info.
The main reason being that they are forced to get on the other side of public action at intermediate extremes of price movement over and over again.
They are FORCED - when the gap the price up 10% the following morning or DOWN - who is FORCING them? Really I am trying to understand this area of magic hands FORCING things - are thier laws they must follow to gap a stock up or down 10% the next morning or they get put in jail? Phils says sandy weill would call them and FORCE them by telling them if they didn't gap the stock price one way or another to burn shorts or stops - they would be fired - how does he keep saying these lies on the air day after day and not go to jail?
Now imagine how great your return would be if every time some idiot freaked out at bad news and decided to sell at some ridiculously low price you were forced to buy from him?
Especially if I had the books no one else had showing all the orders and stop prices!!
Or imagine that every time some other idiot decided to pay some ridiculously high price for something you were forced to sell him shares you didn't own? This is the market maker's job, to simply cross orders until there is a hole or lack of continuity in those orders that needs to be filled, they are the buyer and seller of last resort.
Yah I saw a movie with Eddie murphy - wether you and I win or lose - they always make money - perhaps the time has come for the end of mm's/specialists - Jack Bogle and Andy Kessler both think so - but who are they?
It's the last resort part that makes them money. It's
What do your personal friends think of jack bogle and kessler and the philster when they say we don't need evil middlemen sucking off the wealth - that the markets and technology and computers can work without them?
Goldman bailing out the Bass family buying fifty million shares of DIS at 13, a price it never offficially saw and will probably never see again.
IF we all could only be as "lucky" as goldman has been ;) |
