Who Makes Money on Wall Street?
Board: Macro Economics
James Altucher is a financial blogger off the beaten path. His background is as an entrepreneur and investor both. His writing style contains elements of humor and irreverence. He had a blog post this week that I think is very pertinent, titled: Who Makes Money on Wall Street?
James says that he frequently gets emails to the effect: “Can you introduce me to Steve Cohen (huge hedge fund manager)? I have a new system that will make him a lot of money?”
Sometimes James goes along with the emailer to learn more details of the system. Then he always emails them back with words like:
It’s all BS. NOTHING works. Let me repeat it a different way:
YOU ARE NO GOOD.
You’re not even a good person. You’re arrogant and rude. You smell.
In this post, he details everyone in his opinion that makes money on Wall Street. He does have a lot of experience managing real money and LOSING real money to back up his advice. He says that he has made several fortunes and lost them. Here is the list:
1. People who hold forever- Typically business founders with poster boys Warren Buffet and Bill Gates.
2. People who hold for one trillionth of a second. i.e. high frequency traders
3. People with inside information: “If you know Hilton is about to buy Marriott then you can make an awful lot of money. The Feds arrested a handful of people engaged in insider trading a few years ago but my guess is they only got about 1/10,000 of the people who have inside information. Every hedge fund manager trades on inside information all day long. There’s no other way for them to get any edge on their peers.”
4. Congressmen that can legally trade on inside information.
5. People who take fees. "My favorite example is super hedge fund manager John Paulson. He turned one billion dollars into six billion during the housing crisis in 2007-8. He probably took a billion in fees off the table. Then he raised his fund from six billion to 30 billion as more investors poured in. Then, or so people tell me, he lost 50% and his fund went from 30 billion to 15 billion (these are rough numbers. It’s give or take a few billion). So net-net he lost about $10 billion to the markets. And yet, he’s pocketed about $3 to $4 billion in fees, making him one of the richest people in the world without providing any useful service in the world. He made that money simply by losing even more money. That’s a pretty good job if you can get it."
The blog post is concise and insightful IMO. It is short, so I recommend you take the time to read it. I am sure he is NOT aware of METAR, otherwise he would have listed a 6th group that makes money on Wall Street! For Joe/Jane Main Street investor, I suspect his points are very accurate.