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Equity markets have become so complex and convoluted. It seems like a silly game of people trying to fool each other through layers of abstraction: How can we

Equity markets have become so complex and convoluted. It seems like a silly game of people trying to fool each other through layers of abstraction: How can we take the fundamentally abstract idea of a company, its products, its business model, and its future potential, abstract that one level to a claim for some "portion of the company" (one share of equity, or a stock), abstract that into an index that tracks a portfolio of companies based on some abstracted notion of how to weigh different companies to model some desired strategy that tracks a market, sector, or industry. Then we're going to build software in order to abstract the task of trading whatever residual is leftover from this process amongst ourselves using formulas and algorithms that we think will outperform or trick other formulas and algorithms. It's fascinatingly complex, which is why I suspect so many people on HN are trying to figure out how things like an ETF flash crash could happen. But for the average retail investor, it's damn-near impossible to comprehend.

harryh 11y ago
The average retail investor doesn't need to comprehend it.
- roymurdock 11y ago
  Agreed. But if retail investors are allowed to plow money into the stock market, then regulators need to understand it. Which I'm not sure is the case/is entirely possible with the complexity of modern finance. The average consumer doesn't need to know anything about the drugs she takes. She just needs to know that the drugs are FDA approved and that she can trust the FDA. I guess it comes down to how much you trust the SEC, FINRA, NYSE, etc. to stabilize and support markets. I have no idea if they're doing a good job or not. Any thoughts?
  - __d 11y ago
    There are opinions on both sides. Some are quite insistent that the SEC etc are not doing enough: eg. Themis, Nanex, most of the ZeroHedge crowd. I think the "SEC is doing fine" crowd is less noisy, but probably the majority. Of course, opinions can be influenced by whether the management of the markets is to your financial benefit, and perhaps that's why there seem to be a more people saying nothing: they're heads down, quietly making a fortune ... It's worth noting (again) that the LULD circuit breakers were introduced after the 2010 flash crash, as an attempt by the regulators to "stabilize and support" markets. In some previous events, I think they've worked better than they did on Monday.

harryh 11y ago

The average retail investor doesn't need to comprehend it.

roymurdock 11y ago
Agreed. But if retail investors are allowed to plow money into the stock market, then regulators need to understand it. Which I'm not sure is the case/is entirely possible with the complexity of modern finance. The average consumer doesn't need to know anything about the drugs she takes. She just needs to know that the drugs are FDA approved and that she can trust the FDA. I guess it comes down to how much you trust the SEC, FINRA, NYSE, etc. to stabilize and support markets. I have no idea if they're doing a good job or not. Any thoughts?
- __d 11y ago
  There are opinions on both sides. Some are quite insistent that the SEC etc are not doing enough: eg. Themis, Nanex, most of the ZeroHedge crowd. I think the "SEC is doing fine" crowd is less noisy, but probably the majority. Of course, opinions can be influenced by whether the management of the markets is to your financial benefit, and perhaps that's why there seem to be a more people saying nothing: they're heads down, quietly making a fortune ... It's worth noting (again) that the LULD circuit breakers were introduced after the 2010 flash crash, as an attempt by the regulators to "stabilize and support" markets. In some previous events, I think they've worked better than they did on Monday.