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Hedge fund Nevsky Capital called it quits about a month ago (and this is a fund with historically stellar performance). Their "goodbye letter" [1] does an excel

• vonklaus 11y ago
  Interesting. Markets are totally broken but I hadn't seen any legitimate players acknowledge that yet, good find. While the main argument in favor of HFT is providing liquidity, there really isn't a situation where a 'real' investor needs liquidity at the microsecond level. Solid private companies refuse to go public not on boarding the typical mix of innovators/new companies on an exchange. Companies have much shorter lifespans. and a massive amount of other factors, I can't do justice to on a 48hr sleep deficit. My personal thesis, we are in a huge bubble. Tech, while certainly overvalued, is possibly the least out of whack with a true underlying value (to the degree that even exists). Signs of this are everywhere. It isn't a terrible thing I don't think, but an average investor might not make much money in the market if they started putting money in now.
  • kasey_junk 11y ago
    > Markets are totally broken but I hadn't seen any legitimate players acknowledge that yet That is one way to read the letter. Another way to see it is that technical innovation has provided much cheaper ways to capture the value the hedge fund previously provided. Between index funds that are a cheap way to capture macro gains and and algo funds as a cheap way to capture micro gains there just isn't a reason to pay a hedge fund manager his 2 & 20. I for one am glad about this, because that hedge fund managers profit came largely out of my (or some aggregate person much like me) pocket. > HFT is providing liquidity, there really isn't a situation where a 'real' investor needs liquidity at the microsecond level This is a common misstatement of the liquidity argument for HFT market makers. The correct way to frame it is that HFT market makers can provide liquidity cheaper for a variety of factors: 1) cheaper infrastructure as it is much cheaper to get a machine at an exchange than a person in a pit. 2) more efficient quoting as a computer can quote thousands of markets while a person can quote a half dozen. 3) less risk which is the crux of the argument for speed. To a market maker (HFT or otherwise) the risk they are trying mitigate is the risk presented by hedge funds and other large block orderers. Those large blocks will move the price of the market (that is in fact how the large block orderer captures profit, the information imbalance they have at the beginning of the order compared to the end). Historically some of that profit came out of the market makers pocket, so they had to price every trade higher to account for it. It has always been a cat and mouse game between market makers and hedge funds. Now HFT is better at recognizing and reacting to these large block orders meaning the market maker can price less risk into all of their quotes. > an average investor might not make much money in the market if they started putting money in now. One of the very nice things about our markets is that they will actually reward you handsomely if you take that opinion and turn it into action.
• MrBuddyCasino 11y ago
  Interesting, they think we're in a bubble, too. I wanted to paste the quote, but it seems scribd has some protection that mangles the characters.