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XMFSinchiruna (27.52)

Foolish Traders Versus 21st Century Supercomputers

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July 06, 2009 – Comments (50)

So, you still don't think your equity markets are manipulated? Still don't believe that some offshoot of the President's Working Group on Financial Markets is engaged in buying and selling equities to hold the line at key technical levels or to bolster and sustain runaway rallies? Fine ... you'd be correct to state that direct evidence of those kinds of activities are still lacking for the broader markets (in precious metals orchestrated manipulation by a handfull of bullion banks has been well documented).

However, whether or not the markets are "rigged" hinges not only on the existence of such coordinated actions, but also on the unfair advantages that the wealthy brokerage houses and hedge funds employ to make sure that the retail investor, namely us, will always remain at a competitive disadvantage.

What amazes me about this fascinating criminal case over computer trade secrets alledgedly stolen from Goldman Sachs, is that the trade secrets should be entirely illegal in a market that can be considered fair or unrigged. Goldman Sachs' supercomputing secret sauce succeeds at the expense of the trading masses, and every short-term trader in my opinion has an interest in seeing these unfair practices taken down!

The platform is one of the things that apparently gives Goldman a leg-up over the competition when it comes to rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and uses top secret mathematical formulas to allow the firm to make highly-profitable automated trades.

The bio information for Aleynikov on LinkedIn says he joined Goldman in May 2007 and was vice president for equity strategy. The bio says he was responsible for “development of a distributed real-time co-located high-frequency trading platform.” In his own words, he goes on to describe the platform as “a very low latency (microseconds) event-driven market data processing, strategy and order submission engine.”

For further reading, blogger ZeroHedge's analysis of the events.

 

 

50 Comments – Post Your Own

#1) On July 06, 2009 at 10:01 AM, SkepticalOx (99.44) wrote:

I'm not sure about the manipulation per se, but I just want to point out that if you think you're going to beat the market by looking at a few charts and day-trading, then you are seriously deluding yourself.

You're not only competing with traders in these banks who get information far quicker and more detailed than you, but you're also competing against some seriously powerful computers sitting next to the exchange programmed by people with seriously top credentials. 

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#2) On July 06, 2009 at 10:33 AM, clementcc (< 20) wrote:

SketicalOx, that has nothing to do with the article above. But keep thinking everything is kosher when retail investors loose their life savings investing in idiotic financial intruments like mutual funds, pushed on them by ignorant financial advisors. That's normal.

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#3) On July 06, 2009 at 10:37 AM, XMFSinchiruna (27.52) wrote:

SkepticalOx

Right ... but how on Earth is the existence of those powerful computers as executors of trades permitted in the first place?

People have ceased exerting any meaningful pressure towards maintaining a level playing field, and in their silence systems have been erected that rig the game still further.

 

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#4) On July 06, 2009 at 10:44 AM, portefeuille (99.60) wrote:

I usually don't read articles that talk about "top secret mathematical formulas" (or at least I regret having read the beginning once I encounter terms like that), but the zerohedge Goldman Sachs program trading "coverage" (which did not pick up this kind of terminology) is usually quite interesting.

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#5) On July 06, 2009 at 10:50 AM, portefeuille (99.60) wrote:

Right ... but how on Earth is the existence of those powerful computers as executors of trades permitted in the first place?

How level should the playing field be? Do you have to read out the news to every investor and ask him whether he has any questions before trading can resume?

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#6) On July 06, 2009 at 10:53 AM, portefeuille (99.60) wrote:

(it is by the way no secret that earnings reports are processed by "powerful" computers, i.e. algorithms that are able to find some keywords and compare results to expectations)

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#7) On July 06, 2009 at 10:59 AM, SkepticalOx (99.44) wrote:

TMFSinchiruna

Why not? Unless they're actually doing something illegal, it's no different than having a bunch of traders sitting in front of screens trading (on steroids).

And they're sort of making markets too no?

clementcc

What are you saying? Did you read the title of his blog, or his blog? He spoke about "fairness" between Wall-Street banks vs. short-term retail traders. 

And I tend to lean towards the view that markets may not be efficient, but you'll surely be hard-pressed to beat it, regardless of what strategy you use. 

 

 

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#8) On July 06, 2009 at 11:06 AM, SkepticalOx (99.44) wrote:

TMFSinchiruna

Put it another way. Is it that different from a manufacturer using robots vs. hand-labor? You have to pay-up to hire programmers, to buy the hardware, the constantly update them as to not be obsolete. And a lot of these quant funds LOST money during the crisis. 

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#9) On July 06, 2009 at 11:12 AM, portefeuille (99.60) wrote:

#8 I wanted to mention the phone that put the pigeon out of business but then was not sure whether it was really the phone ...

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#10) On July 06, 2009 at 11:12 AM, zubikov (< 20) wrote:

On the other hand, if you created an algorithm that consistently beat the market by a thin margin and proved to be largely profitable, I really doubt you would be writing this article. This is a classic example of "Hey, it's not fair, he has more money than me. Therefore, he must be a criminal".

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#11) On July 06, 2009 at 11:14 AM, camistocks (< 20) wrote:

So, you still don't think your equity markets are manipulated? Still don't believe that some offshoot of the President's Working Group on Financial Markets is engaged in buying and selling equities to hold the line at key technical levels or to bolster and sustain runaway rallies?

But why did the stock market drop so much then, 55%, until the bottom, if the government was intervening...?

Personally I would have no problem, if the government intervenes in critical situations.

I don't like short sellers because they make money while other people loose their jobs/retirement/fortunes. Yes, intervention would also help my portfolio... The so called free market is just there for the speculators. I don't like this.

Hongkong was very successful in 1998 I think to buy huge amounts of stocks and thus stop the unnecessery downfall. They made a nice profit in the end, I believe.

Aren't you also long term bullish on gold? So why would you like to see the markets drop again?

Enough with the casino, back to investing! 

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#12) On July 06, 2009 at 11:28 AM, XMFSinchiruna (27.52) wrote:

Strange comments from you guys this morning (especially #10) ... :) I think you've all had too many hormone-fed beef products over the holiday weekend. :)

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#13) On July 06, 2009 at 11:34 AM, portefeuille (99.60) wrote:

Bail set at $750,000 for ex-Goldman programmer

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#14) On July 06, 2009 at 11:44 AM, SkepticalOx (99.44) wrote:

TMFSinchiruna

HAHA! Well, what's your opinion on hedge funds like Jim Simon's RennTech? They achieved like 35% for decades after fees. 

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#15) On July 06, 2009 at 12:05 PM, russiangambit (29.29) wrote:

> But why did the stock market drop so much then, 55%, until the bottom, if the government was intervening...?

It is not the government who is manipulators, it is GS and JPM. They "manipulate" or "guide" the market in the position of their bets. And because they are so big ( when leveraged 1:30) , they actually can do that. That is by no means a free market, it is a cartel , just like oil. They lead the market where they want  and it has nothing to do with fundamentals or efficiency  but has everything to do with their profits. The trick is to know what GS or JPM can do , and you'll be a winner. Lately GS has been playing bull side (perhaps as a favor to the government), and suddently all bullish investors think that they are geniuses and the market is trading on fundamentals and they were right all along to believe in the stock market.

The key point to understand that GS has so much control over the market that IT IS the market. If you are OK with that (an  I don't mean you personally cami, just everybody wo participates in the market) , then by all means, there is nothing wrong with the market.

It is true that brokerages always had unfair advantage over an average trader, that is why many traders stick to penny stocks where the brokerages don't play. But I think this advantage increased dramatically over the last  5 years, beyond anything we've seen in the last 50 years. Actually, trading today reminds me of what you read about the bucket shops, where everything is stacked against you by the owners. That is why I've been doing pretty much nothing in the market last 3-4 weeks, just buying gold on the dips here and there and holding on my retail shorts.

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#16) On July 06, 2009 at 1:15 PM, XMFSinchiruna (27.52) wrote:

russiangambit

What he said. :)

(Thanks for saving me the time.)

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#17) On July 06, 2009 at 2:00 PM, camistocks (< 20) wrote:

russian - don't russians usually love conspiracy theories... ;-)

I think people are overestimating the power of GS. You know there are also huge hedge funds out there and also mutual funds (Blackrock, Fidelity, Vanguard etc.)

Why shouldn't we have seen the bottom already in March? Personally I think the recession is just about over. Of course the economy probably won't pick up steam anytime soon but by year end probably...?

Anyway, why aren't you investing (or are you?) in the motherland (=Russia for the noninformed)? The dynamic duo at the top are not corrupt and really want their country to succeed. They are authoritarian patriots. Yes it's not a perfect democracy, but imagine if people like Kasparov (who stages a protest with 20 people in front of hundreds of foreign TVs) would come to power? He would probably sell out the country immediately to the best bidders, probably the USA where he has so many friends, and probably take a small small commission too...). 

I absolutely agree that the market has become a casino (bucket shops), that is why I think the market should be better regulated, supervised and slowed down ...

Also why not break up those "too big to fail" entities and also those that have too much power (GS?)... ;-)

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#18) On July 06, 2009 at 2:02 PM, GeneralDemon (< 20) wrote:

Doesn't it seem easier to beat 21 century computers than foolish traders? How can you possibly program a computer to anticipate a pack of idiots?

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#19) On July 06, 2009 at 2:45 PM, anticitrade (99.65) wrote:

I think it is a stretch to say that the use of supercomputers qualifies as market manipulation. 

There seems to be a few different types of automated systems..  One group acts on technical indicators.  This group can not really run the market because they depend on a predictable pattern of human emotion.  If they DID run the market it would be chaos (I think).

The other group would probably focus on long term fundamentals.  If this group ran the market it would eliminate the soft/emotional issues from the market and and it would decrease volatility.  This sounds pretty good.

As an active investor it seems you can either be born with an ability to understand the soft issues of the market better than professional traders who can lever both time and money.  Or build an automated system that is better than the ones built by the HUGE quant firms with countless PhDs and piles of cash. 

I don't know which is more probable....  But building your own system has been a lot more fun.

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#20) On July 06, 2009 at 3:08 PM, bigpeach (27.37) wrote:

Sinch, could you elaborate on why you think this is manipulation and should be illegal? We all, for example obviously have a computer and internet access. That allows us to get information, analyze it and place trades faster than someone who does not. I don't see what the difference is.

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#21) On July 06, 2009 at 4:03 PM, XMFSinchiruna (27.52) wrote:

bigpeach

It creates an unsportsmanly advantage for the GSs of the world. Unless you can afford to build your own supercomputer with similarly functioning algorithms hard-wired by T1 connection to the trading floor mainframes, then those possessing said tools have the ability to make or break markets before your web browser can produce the headline in question. People seem to accept as inevitable the fact that by the time a headline has crossed the wires, your stock has already moved the umpteen % that it's likely to move on the news ... ask yourself why you accept as fair any advantage to Goldman Sachs that you as a trader can not reasonably be capable of mimicking? Some of you seem so accustomed to this rigged market system with a built-in advantage for the wealthy banksters that you fail to perceive it as rendering the market unfair to you as a trader. They've already had the game fixed for as long as it's been a game, as russiangambit pointed out, but the appearance of these supercomputers took it to the next level ... into the realm of blatant market manipulation at your expense.

Your analogy is funk, since anyone can walk into their local public library and trade equities on a computer if they so choose ... without any undue burden of cost.

I'm fascinated by this outpouring of support for such an underhanded means of fixing their gains at your expense. You guys never cease to amaze me. :)

 

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#22) On July 06, 2009 at 6:11 PM, XMFSinchiruna (27.52) wrote:

Food for Foolish thought:

We have an existing legal framework prohibiting trading on the basis of insider information. I submit that for the nanoseconds before which the first human pair of eyes can process a breaking news headline, said news is functionally indistinguishable from insider information.

Think, Fools ... is it healthy for the (few remaining) major brokerages and/or their hedge fund kin to possess a trading advantage not shared by any of the non-beneficiary human beings participating in said market. Given what we've seen results when these houses were granted excessive freedom to act in their best interest, irrespective of consequences, I remain shocked by the level of unquestioning tolerance for the pre-collapse status-quo with which this story is being received. 

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#23) On July 06, 2009 at 6:36 PM, UKIAHED (36.65) wrote:

It creates an unsportsmanly advantage for the GSs of the world. Unless you can afford to build your own supercomputer with similarly functioning algorithms hard-wired by T1 connection to the trading floor mainframes…

 

Wouldn’t it be much easier to just buy GS stock if the advantage is that great?  Then I could share in that profit advantage with little work on my part…

 

said news is functionally indistinguishable from insider information.

 

I very much agree with this statement – not sure how you would police this – but I would sure love to be the first one with all the data…:)

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#24) On July 06, 2009 at 6:52 PM, XMFSinchiruna (27.52) wrote:

UKIAHED

Wouldn’t it be much easier to just buy GS stock if the advantage is that great?  Then I could share in that profit advantage with little work on my part…

Shares do not yield sole exposure to the trading side, but also unfortunately to the unsightly derivatives and debt exposure sides.

I very much agree with this statement – not sure how you would police this – but I would sure love to be the first one with all the data…:)

It's very easy. You police it by disallowing the computers and employing server monitoring technology to ensure that such hyper-fast and inhuman speed is not employed in trades.

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#25) On July 06, 2009 at 10:34 PM, russiangambit (29.29) wrote:

> Also why not break up those "too big to fail" entities and also those that have too much power

 Yes, that exactly what I want. I am outraged that nobody at the top is talking about reinstating G-S law , which will effectively will force the break up of the "too big too fail".

As for why I am not trading, I think I am not alone, just look at the volume. The market became too spooky, it will do nothing for hours and then spike 1% out of the blue. So, shorting it very risky unless you are 500% sure in your position and can withstand 10-20% spike. Going long is not attractive at this level. Plus, I have a feeling that the floor could fall out  from under the market at any minute, all the NYSE "technical" issues, GS program stolen, spikes in the futures, stock going up 10-20% on secondary announcements, this is not a normal market.

The whole high-frequency computer trading thing doesn't sit well with me. I was programmer long time ago , so I have a good idea about the damage those programs, excuting thousands of trades per second can do. They are running circles around retail traders, they are in and out of the trade several times in the time you place the order and the order is executed. And they have the order book too.

I think there is a decent chance of things stabilizing by next January, but the rally started in March, that is whole 9 months ahead.

As for the conspiracy theories, let's just say being russian beats out all the naivite out of the person pretty quickly. But I don't think it is such a bad thing. Just look at Soros, talk about being paranoid, the guy doesn't trust anyone.

Investing in Russia is even riskier than gambling. I do buy russian "state sponsored" companies stocks at low prices for a very long term, like 5 years. They are very cheap  and have a huge potential to win big, but also to loose big.

I will probably do a separate post when I have more time as to why I think the countries with a lot of land and natural resources will be future winners, I am talking 20-30 years from now. These will be Canada, Australia, Russia, Brazil , and may be China but China and India are very limited in land and resources for their population. And I am not talking just about oil and minerals , I am talking about fresh water also.

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#26) On July 06, 2009 at 11:37 PM, walt373 (99.80) wrote:

Maybe we should've outlawed internet trading when it first was invented? Not everyone had an internet connection back then. =)

Retail investors will always be at a disadvantage. You don't need a supercomputer to hear about news or rumors early if you work on Wall Street. Institutions have superior tools and that's something you can't really stop in a free market. Imagine trying to tell Google they can't use some type of expensive computer because they are too fast and their competitors can't afford them. It's the same thing.

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#27) On July 06, 2009 at 11:43 PM, randomwalkaway (< 20) wrote:

I am not sure why the focus is almost always on GS. Conspiracy theories seem to gain popularity in such times as now. People feeling disenfranchised - or just unlucky - and need a reason to explain and feel better. "The rules were unfair", "These guys cheated!" and so on. The conspiracy theories seem to die down again when the tide starts to rise and people feel better: attributing gains to their wisdom in an up market, losses to dark forces in a down market.

Anyway ..  

All major investment banks have, or have had, program trading operations. They are not new either. They sometimes make money, they sometimes dont. Hence the "have had" ... there is no systematic way of consistently beating the market, regardless of your computing power, 'low latency' and "secret source". If there were, GS would employ only computer technicians and not those famously-expensive bankers...

If you view investments as only needing one microsecond of computerised due diligence to scan an earnings release, then these systems are your competition. If you have a more considered approach to investing, these systems are just a little more liquidity in the market, and have no negative impact on you.

By the way, the computing power of these systems is not "mainframes" ( which are relatively slow and high latency, good for back office but not for real-time trading ) but often relatively simple Intel or AMD-based systems running Linux - well within the grasp of many. The 'value', if any, is in the success or otherwise of algorithms. It should not require a conspiracy to accept rewarding of those who take a risk and create value.

kbw

( not a current nor previous employee of GS, for the record )

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#28) On July 06, 2009 at 11:54 PM, russiangambit (29.29) wrote:

> I am not sure why the focus is almost always on GS. Conspiracy theories seem to gain popularity in such times as now. People feeling disenfranchised - or just unlucky - and need a reason to explain and feel better

People always have a need to explain everything and when no clear explanation is apparent, they come up with various theories.

GS is the target, as well as JPM because they are the biggest and the most politically connected and because they always show up on these pesky Bloomberg terminals, it seems, not that I have one.

> If you view investments as only needing one microsecond of computerised due diligence to scan an earnings release, then these systems are your competition. If you have a more considered approach to investing, these systems are just a little more liquidity in the market, and have no negative impact on you.

Yes, so everybody else is pushed into the long-term investing realm since they cannot compete as short-term traders against GS and the like. And we've seen have long term investing worked last 10 years and it looks like next 10 years won't be much better.

 

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#29) On July 06, 2009 at 11:57 PM, portefeuille (99.60) wrote:

By the way, the computing power of these systems is not "mainframes" ( which are relatively slow and high latency, good for back office but not for real-time trading ) but often relatively simple Intel or AMD-based systems running Linux - well within the grasp of many. The 'value', if any, is in the success or otherwise of algorithms. It should not require a conspiracy to accept rewarding of those who take a risk and create value.

And a location "physically" close to the exchange. The discussion in the comment section of the zerohedge article is rather interesting.

No idea why tmfsinchiruna is so outraged that many are not as outraged. I don't know how old he is but his outrage is probably at least a decade too late ...

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#30) On July 07, 2009 at 9:09 AM, XMFSinchiruna (27.52) wrote:

portefeuille

No idea why tmfsinchiruna is so outraged that many are not as outraged. I don't know how old he is but his outrage is probably at least a decade too late ...

It's about recognizing that the events of the past 15 months revealed layers of corporate malfeasance and roullette games played with your future and mine that have a direct impact upon our quality of life and our pursuit of happiness. To not question the procedures they employed to play their high-stakes games is lunacy in the context of the destruction they caused. I know high-speed trading platforms have been around for a long time, and I know this particular example is of greater interest to those poor Fools relying upon short-term trading, but it's yet another glaring example of a market rigged against the fair access of the common investor ... and whether it's been going on for ten minutes or ten years does not impact the injustice of it.

I am not outraged ... I am astonished at the apathy and the acceptance of many of those commenting here for the status quo in the investing world despite all that has come to light recently. I have known the Goldman Sachs of the world possessed unfair advantages and unfettered access to their ill-begotten fortunes for decades ... it is not new to me. Those who presumed everything was as it should be right up until the Bear Stearns collapse ... those are the folks whom I would expect to be expressing some outrage. 

It looks like everyone's ready to go right back to the way things were before Bear Stearns ... that sense of apathy troubles me.

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#31) On July 07, 2009 at 9:59 AM, SkepticalOx (99.44) wrote:

TMFSinchiruna

What I don't understand is how this is any different than what happens in any other competitive market? GS has a competitive advantage because of the investment they made into R&D and whatnot. If you could find the investors for your investing program, and then you bought up a building next to the exchange, and purchased the most powerful computers, you could do the same.

I'm not sympathetic to them nor do I despise them, but this is no different than any other large successful corporation investing big in something that gives them a big competitive advantage. But that will decay. Quant funds are numbered in the thousands. 

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#32) On July 07, 2009 at 10:09 AM, XMFSinchiruna (27.52) wrote:

SkepticalOx

I maintain that during the nanoseconds before which tradable headlines can be processed by the human brain, that data is functionally indistinguishable from insider information. 

And I repeat, the advantage comes at your expense!

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#33) On July 07, 2009 at 11:07 AM, SnapDave (60.20) wrote:


What should also be considered is unintended consequences of computers making many large trades without human review possibly resulting in crashes. I'm sure they think the PhD's have a handle on it by now but history is full of people smarter than you causing incredible misery. The huge complexity ensures another CDS grade disaster some day.

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#34) On July 07, 2009 at 11:44 AM, portefeuille (99.60) wrote:

The huge complexity ensures another CDS grade disaster some day.

Have a look at this post.

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#35) On July 07, 2009 at 12:33 PM, SkepticalOx (99.44) wrote:

I maintain that during the nanoseconds before which tradable headlines can be processed by the human brain, that data is functionally indistinguishable from insider information. 

Haven't I-banks always had these advantages, even without the computers? Their traders always have had an information edge over retail traders.

Trading (not investing) is a zero-sum game. Someone's gain is someone else's loss. So of course it comes at our expense.

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#36) On July 07, 2009 at 1:12 PM, angusthermopylae (38.67) wrote:

SkepticalOx

Trading (not investing) is a zero-sum game. Someone's gain is someone else's loss. So of course it comes at our expense.

Tap-tap-tap  <-- That's the sound of the nail being hit on the head.

When you buy a stock, you put money into that company...and/or the market overall.

When you sell the stock, you are pulling money out...and you either left money in there for someone else (a loss), or you pulled out someone else's money (a gain).  Along the way, there were thermodynamic-type losses due to fees and such (transaction fees, management fees for  funds and accounts, etc.)

I tend to believe that a lot of people either don't fully understand this view, don't believe it, or don't really know of it.  For me, however, this view colors every transaction and decision.

  --I'm a small player, so I'm not going to make things move.

  --"Beating the market" is actually "predicting the [unpredictable] tide".  As such, you can't control it, only try to out guess it...and try to profit from the movement.

  --Bigger players have the advantages.  To mix in another metaphor, the market is a jungle, GS is a back of lions, and I'm merely a lowly mouse trying to sneak in and grab a bite.  If I'm slow, stupid, or unalert, I'll become part of the big boys' meal.

Keep that in mind, and you're probably close to the proper frame of reference...and it makes it fun, not life-or-death.

If you do become one of the big boys (Buffett, dot-com types, etc), then congratulations....you can whip up on those lions and get a bigger chunk of meat.

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#37) On July 07, 2009 at 3:00 PM, angusthermopylae (38.67) wrote:

...GS is a back of lions...

that should have been "pack"

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#38) On July 07, 2009 at 4:13 PM, bigpeach (27.37) wrote:

I maintain that during the nanoseconds before which tradable headlines can be processed by the human brain, that data is functionally indistinguishable from insider information.

You can't really police fractions of a second. Regulate however you want, this technology will still exist and will be faster to trade than retail investors. If your point is that GS et. al. have engaged in some rather disgraceful practices recently, I don't think anybody's disagreeing. Rather it's this example of computerized trading. Even if you ban the use of automatic trading entirely, GS will be faster than I, because they can pay to have people sit there and watch the screens all day and I can't. So are we going to ban that too? There's simply nothing here to get upset over.

By the way Sinch, since when did you become in favor of regulation? :)

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#39) On July 07, 2009 at 4:44 PM, lucas1985 (< 20) wrote:

@russiangambit,
"People always have a need to explain everything and when no clear explanation is apparent, they come up with various theories."
That's a definition of conspiracy theory: trying to find patterns in a sea of random noise.
http://www.fooledbyrandomness.com/
@Konbanwa,
"The conspiracy theories seem to die down again when the tide starts to rise and people feel better: attributing gains to their wisdom in an up market, losses to dark forces in a down market."
Conspiracy theories are deeply embedded in American culture and politics.
http://www.amazon.com/Conspiracy-Theories-Secrecy-American-Culture/dp/081663243X
@TMFSinchiruna,
"It's about recognizing that the events of the past 15 months revealed layers of corporate malfeasance and roullette games played with your future and mine that have a direct impact upon our quality of life and our pursuit of happiness. To not question the procedures they employed to play their high-stakes games is lunacy in the context of the destruction they caused. I know high-speed trading platforms have been around for a long time, and I know this particular example is of greater interest to those poor Fools relying upon short-term trading, but it's yet another glaring example of a market rigged against the fair access of the common investor ... and whether it's been going on for ten minutes or ten years does not impact the injustice of it.
I am not outraged ... I am astonished at the apathy and the acceptance of many of those commenting here for the status quo in the investing world despite all that has come to light recently. I have known the Goldman Sachs of the world possessed unfair advantages and unfettered access to their ill-begotten fortunes for decades ... it is not new to me. Those who presumed everything was as it should be right up until the Bear Stearns collapse ... those are the folks whom I would expect to be expressing some outrage.
It looks like everyone's ready to go right back to the way things were before Bear Stearns ... that sense of apathy troubles me."

The events of the past 15 months are common to the implosion of every financial bubble. These events reveal who has been swimming naked, who committed fraud, who was the Ponzi borrower (Minsky theory of finance) etc.
http://en.wikipedia.org/wiki/The_Great_Crash,_1929
http://www.amazon.com/Manias-Panics-Crashes-Financial-Investment/dp/0471389455
http://en.wikipedia.org/wiki/Animal_Spirits:_How_Human_Psychology_Drives_the_Economy,_and_Why_It_Matters_for_Global_Capitalism
http://www.finfacts.ie/irishfinancenews/article_1014734.shtml

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#40) On July 07, 2009 at 5:36 PM, camistocks (< 20) wrote:

Russiangambit - spikes in the futures, stock going up 10-20% on secondary announcements, this is not a normal market.

You know, could it be that today there are so many retail "traders" who are sitting in front of their terminal or their computer and are all watching the same news, eg CNBC? And they react at the same moment. It's a trader bubble. It will burst too. ;-)

Russian stocks: I have about 5% of my portfolio in Russian stocks for the long term (5 years) via the ETF RSX to avoid gambling and a few stocks like VIP, WBD. The market is ridiculously cheap and high risk means high returns. Low risk is low returns. And Marc Faber likes Russia too...

I will probably do a separate post when I have more time as to why I think the countries with a lot of land and natural resources will be future winners, I am talking 20-30 years from now. These will be Canada, Australia, Russia, Brazil , and may be China but China and India are very limited in land and resources for their population. And I am not talking just about oil and minerals , I am talking about fresh water also.

I will gladly read it with interest.

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#41) On July 07, 2009 at 6:41 PM, stan8331 (97.22) wrote:

I think the Goldmans of the world are essentially profiting from a rigged game.  However, it's hard to see a practical way to eliminate their advantage in ultra-short-term trading.  On the other hand, there are plenty of other ways to invest that don't offer that sort of advantage to the mega-players.  Long-term individual investors have some significant advantages over big banks and institutions, precisely because they often have more freedom to overlook short-term losses in stocks that will greatly appreciate over the long-term.  It's highly unlikely I'll ever make a billion dollars, but there actually is a chance my return rate could beat Berkshire's.  I'm a woefully unskilled investor compared to Warren Buffet, but massive size is a serious constraining force.

Both extremes in this argument are equally wrong.  It is impossible to legislate a totally level playing field, and it would be unwise to make such an effort.  However, that does not imply that the game should proceed without any rules at all.  The financial industry has a long history of blithely dismissing the concerns of small investors.  One very clear point to be taken from the recent meltdown is that the big players not only do not know what's best for the financial system as a whole, but in many cases they have proven to not even know what was best for their own companies.

That said, imposing a draconian set of rules that dramatically raised the cost and complexity of trading for everyone would benefit nobody, regardless of good intentions.  What's needed are rules that do as much as practically feasible to make the game fair for all players, without imposing undue burdens on the larger system. 

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#42) On July 07, 2009 at 7:53 PM, AdirondackFund (< 20) wrote:

It's probably not realistic to expect them to take Big Blue off the floor or out of the Trading Houses.  It is sort of expected what with robotic arms functioning in Auto PLants and the like.  The issues may boil down to just the 'manipulation' part of the story.  There is a lot to be said on this issue, especially if they are simulaneously acting as market makers in the same stock, which I'll bet is nearly 100% of the cases.  This is proprietary trading at it's automated best.  It is an 'engine' as it is described in the article.  It's going to be interesting to see if there will be much discussion about this in Congress or if an Investigation will be launched to find out exactly how deep the control and damage to markets can be. 

I find the whole thing fascinating and witnessed much of the strategy formation and techniques myself and they do plainly play out on the tape.  In my mind anyway, they do.  I continue to believe now, as I did then, that the human animal still has the advantage in the sense that some traders are simply spectacular.  The entire formula is based on human behavior to begin with, so why clearly big blue processes faster, sometimes it's calculations aren't human enough.  Especially in the 'risk' category as we have so far seen.  Computers are stupid.  They lack fundamental judgement most all of the time.  This is not like playing Chess, it is like playing backgammon, and sometimes the good trader reads the 'roll of the dice better'.   

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#43) On July 07, 2009 at 9:56 PM, russiangambit (29.29) wrote:

> I am not outraged ... I am astonished at the apathy and the acceptance of many of those commenting here for the status quo in the investing world despite all that has come to light recently.

Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.

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#44) On July 07, 2009 at 10:43 PM, FleaBagger (29.02) wrote:

I'm no fan of Goldman, but I believe that whoever develops algorithms and superfast computers should be allowed to profit from them. My only problem with Goldman is that they use their control over the government to manipulate the currency and create asset bubbles from which they profit. Other than that, I think they're a fine, respectable company.

It really is (at least 50.01% of) the public's fault, for putting the government in such a position of influence over private property, a position that can be abused by companies like Goldman the moment no one's watching. And trust me, whatever program or regulation you implement now, ten years out, no one will be watching, and it will be manipulated by Goldman (or the Goldmans of the future) to steal from you and your children.

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#45) On July 07, 2009 at 10:45 PM, FleaBagger (29.02) wrote:

Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.

Very nice. I will now find your blog and rec your latest post.

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#46) On July 08, 2009 at 12:55 AM, UKIAHED (36.65) wrote:

Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.

 

Amen russiangambit

For the rest of the quote (and a bit of research as to the author)...


 

 

 


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#47) On July 09, 2009 at 1:34 AM, memoandstitch (< 20) wrote:

Just do your due diligence before investing and you will be fine.  It is rare to have news that shocks the stock price exactly when you are about to submit your order.

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#48) On July 09, 2009 at 4:46 PM, silverminer (30.78) wrote:

Here are thoughts on the topic from Dan Norcini of JSMineset.com:

Now you can see why Goldman Sachs has its panties all in a bind about their little ol’ computer program… that is what investing has boiled down to these days – who can get their order in front of the next guy and get it to the exchange the fastest… As a long time speculator I used to be proud of my profession but I must say that this new breed of fund managers and their quant boxes disgust me because it feeds into the notion that we are nothing but a bunch of low-life parasites who produce nothing useful. At least we once did a lot of analysis and provided liquidity and served as a conduit for commercials looking to offload risk. We have now been reduced to a bunch of leeches sucking money out of the hands of those who actually still believe that the markets serve as a price discovery mechanism. Trading/Investing has morphed into a hopped up video game on steroids.

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#49) On July 09, 2009 at 8:51 PM, portefeuille (99.60) wrote:

Was it really that much better when a bunch of NYSE market makers earned a huge spread (by today's standards)?

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#50) On July 13, 2009 at 5:48 AM, portefeuille (99.60) wrote:

Citadel sues former employees who set up Teza Tech

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