7 ms·

The only way you can consistently make money is by knowing things others do not (e.g., insider trading) or by taking advantage of structural problems or ineffic

The only way you can consistently make money is by knowing things others do not (e.g., insider trading) or by taking advantage of structural problems or inefficiencies in the trading platform (e.g., high frequency trading). I do believe that insider trading is rampant. I've seen many occasions where a large corporate announcement sends a stock up or down, but hours before, you can see the price of the stock slowly slide in the direction. Obviously a certain amount of that may be random/explainable, but I've seen it a lot and my intuition says more is going on. This also seems relatively easy to quantitatively measure, I'd love to see a real analysis of it.

wolco 8y ago
Most people follow the community when they should be trying to be ahead of the community.
colechristensen 8y ago
Information asymmetry doesn't have to be on insider information.
- speedplane 8y ago
  > Information asymmetry doesn't have to be on insider information. In theory, yes, in practice no.
  - topmonk 8y ago
    I used to visit fuckedcompany.com to short sell companies based on information I found there. It worked for awhile until that site became too popular. That was a long time back, 1999 or so.
    - Retric 8y ago
      Which get's into the short vs long term problem. In the short term strategy X works, in the long term it failed. How much of that success is random chance and how much is the value of the underlying data? And how do you avoid losing all benefit when the strategy eventually fails? The reality is this kind of short term incite based investing does not really scale. Over time the money you spend on paying people to do this is less than your risk adjusted long term benefit.
worik 8y ago
Front running.
cm2187 8y ago
Could also be confirmation bias. If you see the stock going up before a good news you notice it and think this is insider dealing. If you see the stock going down you don’t notice it because it is just a random movement.
- pbhjpbhj 8y ago
  Would be simple to test with past data, surely.
  - cm2187 8y ago
    Yep, assuming every announcement is a complete surprise to the market, which is also unlikely.
  - ed312 8y ago
    This would also require you to log all past predictions for a large enough sample of events to be worthwhile.
nickthemagicman 8y ago
There's an article recently where a hacker hacked a bunch of journalists and was selling that information to investors on wall street.
- ralphael 8y ago
  I think this is what you are referring to https://www.theverge.com/2018/8/22/17716622/sec-business-wire-hack-stolen-press-release-fraud-ukraine https://www.theverge.com/2018/8/22/17716622/sec-business-wir...
jcfrei 8y ago
Your two ways fall a bit short. The goal of markets is to integrate any kind of information into an assets price which is relevant for its value (so called price discovery). So the ideal way to make money would be to discover some new source of information, like for example the data from social media (which was pretty new some years ago). Another example: Some decades ago quant funds started using weather data for trading commodity futures, etc.
VBprogrammer 8y ago
I find the market for knowledge which others do not have but which aren't actually illegal to be quite fascinating. There is a company who will break down a brand new car into its component parts and by knowledge of materials and production processes can tell to a very narrow margin what the cost of producing that car is - and therefore the profit potential of each sale. The information about the number of cars sold is either public or more easily obtained than the actual company accounts (public in many jurisdictions due to car registrations). There are other companies who will buy a bunch of iPhones for example and by carefully analysing the serial numbers can deduce to within a reasonable margin exactly how many have been sold. Using information like this I'm sure most large trading firms have very good models of the likely performance of each publicly listed company. I wonder how far down this rabbit hole things go. Do they have people standing outside factories counting how many cars leave on the back of the truck? Do they have access to systems like Galileo in the travel industry where they could figure out how many seats had been booked on a plane, or how many rooms were booked in a hotel? They can then take a good guess at staffing / fixed costs and arrive very much in the correct ball park.
- dzdt 8y ago
  Satellite imagery counting the cars, not people. [1] http://www.otusintel.com/insights/hedge-funds-gaining-trading-edge-through-satellite-imagery/ http://www.otusintel.com/insights/hedge-funds-gaining-tradin...
- laurentl 8y ago
  > There are other companies who will buy a bunch of iPhones for example and by carefully analysing the serial numbers can deduce to within a reasonable margin exactly how many have been sold. AKA the German Tank Problem (https://en.wikipedia.org/wiki/German_tank_problem https://en.wikipedia.org/wiki/German_tank_problem). Fascinating application of statistics.
  - mamon 8y ago
    Except it only works when serial numbers are sequential, I believe the common practice today is to have serial numbers to be random alphanumeric strings.
njloof 8y ago
One trick insiders use is when they know a stock will go down, they invest in competitors within the sector. They don’t have the same reporting requirements for those shares and are much less likely to get caught.
throwawaymath 8y ago
> I do believe that insider trading is rampant. I've seen many occasions where a large corporate announcement sends a stock up or down, but hours before, you can see the price of the stock slowly slide in the direction. I can tell you from professional experience that is most often not insider trading. You might be surprised at the amount of meaningful information that can be legally obtained through research. I used to (very legally) find and analyze data that would lead to better conclusions than street analysts. The results of equity earnings are basically an open secret among institutional investors before they're announced.
- ksdale 8y ago
  Yeah, along the same lines, the actual definition of insider trading is a lot narrower than people think, there's interactions that would be insider trading if it came from the CEO, but is not insider trading if it comes from a guy who overheard the CEO on the phone in a coffee shop or something. Multiply that by thousands of employees with "sensitive" information having unguarded conversations that they're perfectly allowed to have, and there's a lot of information out there.
perl4ever 8y ago
"Knowing things others do not" can be perfectly legal, because a lot of times the crucial knowledge is recognizing something as important among all the chaff. There was somebody who recently demonstrated that you can derive useful information from simply reading SEC filings, which orthodox theorists would presume should already be reflected in stock prices.

wolco 8y ago

Most people follow the community when they should be trying to be ahead of the community.

colechristensen 8y ago

Information asymmetry doesn't have to be on insider information.

speedplane 8y ago
> Information asymmetry doesn't have to be on insider information. In theory, yes, in practice no.
- topmonk 8y ago
  I used to visit fuckedcompany.com to short sell companies based on information I found there. It worked for awhile until that site became too popular. That was a long time back, 1999 or so.
  - Retric 8y ago
    Which get's into the short vs long term problem. In the short term strategy X works, in the long term it failed. How much of that success is random chance and how much is the value of the underlying data? And how do you avoid losing all benefit when the strategy eventually fails? The reality is this kind of short term incite based investing does not really scale. Over time the money you spend on paying people to do this is less than your risk adjusted long term benefit.

worik 8y ago

Front running.

cm2187 8y ago

Could also be confirmation bias. If you see the stock going up before a good news you notice it and think this is insider dealing. If you see the stock going down you don’t notice it because it is just a random movement.

pbhjpbhj 8y ago
Would be simple to test with past data, surely.
- cm2187 8y ago
  Yep, assuming every announcement is a complete surprise to the market, which is also unlikely.
- ed312 8y ago
  This would also require you to log all past predictions for a large enough sample of events to be worthwhile.

nickthemagicman 8y ago

There's an article recently where a hacker hacked a bunch of journalists and was selling that information to investors on wall street.

ralphael 8y ago
I think this is what you are referring to https://www.theverge.com/2018/8/22/17716622/sec-business-wire-hack-stolen-press-release-fraud-ukraine https://www.theverge.com/2018/8/22/17716622/sec-business-wir...

jcfrei 8y ago

Your two ways fall a bit short. The goal of markets is to integrate any kind of information into an assets price which is relevant for its value (so called price discovery). So the ideal way to make money would be to discover some new source of information, like for example the data from social media (which was pretty new some years ago). Another example: Some decades ago quant funds started using weather data for trading commodity futures, etc.

VBprogrammer 8y ago

I find the market for knowledge which others do not have but which aren't actually illegal to be quite fascinating. There is a company who will break down a brand new car into its component parts and by knowledge of materials and production processes can tell to a very narrow margin what the cost of producing that car is - and therefore the profit potential of each sale. The information about the number of cars sold is either public or more easily obtained than the actual company accounts (public in many jurisdictions due to car registrations). There are other companies who will buy a bunch of iPhones for example and by carefully analysing the serial numbers can deduce to within a reasonable margin exactly how many have been sold. Using information like this I'm sure most large trading firms have very good models of the likely performance of each publicly listed company. I wonder how far down this rabbit hole things go. Do they have people standing outside factories counting how many cars leave on the back of the truck? Do they have access to systems like Galileo in the travel industry where they could figure out how many seats had been booked on a plane, or how many rooms were booked in a hotel? They can then take a good guess at staffing / fixed costs and arrive very much in the correct ball park.

dzdt 8y ago
Satellite imagery counting the cars, not people. [1] http://www.otusintel.com/insights/hedge-funds-gaining-trading-edge-through-satellite-imagery/ http://www.otusintel.com/insights/hedge-funds-gaining-tradin...
laurentl 8y ago
> There are other companies who will buy a bunch of iPhones for example and by carefully analysing the serial numbers can deduce to within a reasonable margin exactly how many have been sold. AKA the German Tank Problem (https://en.wikipedia.org/wiki/German_tank_problem https://en.wikipedia.org/wiki/German_tank_problem). Fascinating application of statistics.
- mamon 8y ago
  Except it only works when serial numbers are sequential, I believe the common practice today is to have serial numbers to be random alphanumeric strings.

njloof 8y ago

One trick insiders use is when they know a stock will go down, they invest in competitors within the sector. They don’t have the same reporting requirements for those shares and are much less likely to get caught.

throwawaymath 8y ago

> I do believe that insider trading is rampant. I've seen many occasions where a large corporate announcement sends a stock up or down, but hours before, you can see the price of the stock slowly slide in the direction. I can tell you from professional experience that is most often not insider trading. You might be surprised at the amount of meaningful information that can be legally obtained through research. I used to (very legally) find and analyze data that would lead to better conclusions than street analysts. The results of equity earnings are basically an open secret among institutional investors before they're announced.

ksdale 8y ago
Yeah, along the same lines, the actual definition of insider trading is a lot narrower than people think, there's interactions that would be insider trading if it came from the CEO, but is not insider trading if it comes from a guy who overheard the CEO on the phone in a coffee shop or something. Multiply that by thousands of employees with "sensitive" information having unguarded conversations that they're perfectly allowed to have, and there's a lot of information out there.

perl4ever 8y ago

"Knowing things others do not" can be perfectly legal, because a lot of times the crucial knowledge is recognizing something as important among all the chaff. There was somebody who recently demonstrated that you can derive useful information from simply reading SEC filings, which orthodox theorists would presume should already be reflected in stock prices.