4 ms·

My understanding of the history of the stock market is that it was nothing short of a revolution in the sense that "normal people" suddenly could invest in larg

by hnarn 7y ago

My understanding of the history of the stock market is that it was nothing short of a revolution in the sense that "normal people" suddenly could invest in large companies, and that these new types of publicly traded companies through the power of what we today would call "crowdsourcing" managed to bypass the old giants through their accountability to their shareholders and their ability to raise capital from the masses. So far, so (pretty) good. Next, I'm reminded of when Elon Musk talked about integrated AI, and how we may one day end up in a situation where any type of intellectual or physical competition between humans, in the labor market or elsewhere, may just come down to how much money they have to spend on cybernetic, biological enhancement products. My synthesis here is that from my perspective, the stock market has since the advent of digital trading tools, now vastly accelerated by expanded usage of machine learning in financial markets, completely undermined the original benefit of the stock market, where a pretty true democratization of the economy, almost an incredibly true one considering it was born in a capitalist society, has now been rolled back and undermined by "big capital" finding a tool that allows them to rig the game to their favor. So if the assumption is correct that machine learning in financial markets essentially is just an interface for the already-rich to beat the never-rich by throwing more money at the problem, doesn't it stand to reason that these types of tools should be heavily regulated, if we want a stock market that has any resemblance of fairness and democratic influence on the economy? I understand very well we are far away from this today, and I understand that rich people will not allow regulations that punish them, but if we go beyond the knee-jerk reaction of "cash rules baby", is this really the way things should be?

bogle 7y ago
Tim Harford in "The Undercover Economist" has a neat description of how the market isn't rational and really can't be predictable. So I'm not worried about machines in the market as they can't really do any better, I believe. As for the super-rich, they have asset managers who pool family funds. Even a small family fund will have millions invested and a small asset manager will have billions under management (pick your own major currency). Every millionaire will be doing the same thing so none of them get an advantage and going against the herd would be unlikely to pay off, short to mid-term (again, my reading of "The Undercover Economist").
short_sells_poo 7y ago
There are two big assumptions in your hypothesis that are incorrect in my opinion: 1. The prevalence if machine learning in trading. 2. That the game wasn't rigged against retail at a point in the past. First, there is very little (almost none) sophisticated ML in trading. Sure, if you call linear regression or simple classification tools ML, then yes, there's plenty of ML in finance, and has been for decades. If you think that there are super sophisticated DNNs running the majority of trading today, you are very far from the truth. The vast majority of trading is based on fairly simple models. It happens mostly based on human insight and exploiting specific market flows. Sure, almost every firm has some token ML overlay for marketing purposes because it was the fad of the recent years. They all want the public to think that they have some super secret sophisticated AI that gives then an edge. It's all a smoke screen. Almost none of them mean it in earnest. In truth, it is incredibly difficult to build anything resembling a scalable and robust strategy with complex ML tools. The reasons are too numerous to describe here. a very small handful of firms have the capability and mandate to actually use these tools with success, but their market participation is minute, basically negligible. Second, the game was always rigged in a sense. Big money could always buy privileged access to liquidity, information and tools. Nothing has changed here. If anything, the commoditization of all three of those things has lowered the barrier of entry. You can run a successful quant fund with a couple of friends now. That was much more difficult before.
tekkk 7y ago
There are benefits of scale, sure. But it's basically the same for other aspects. The rich can buy better education, invest in hobbies etc while the poor can't. So it's nothing new and i think because "AI" tools are getting so widespread it will actually offer better options for the poor. Same with free education tools getting more and more popular. So it's not all negative. But when speaking about very advanced tools that could, in theory, give unprecedented advantage to few rich people it would be in the best interest of governments to invent tax schemes that would redistribute their earnings more evenly. On the same note i think countries ought to implement digital taxes in the near future to not to become digital colonies where the internet companies have no employees and pay their taxes elsewhere, eg ireland. With margins as high as they are for digital goods where it's all ones and zeros traveling through cables, to support their own economy and skilled workforce something has to be done. It's already a problem where the rich can make their money in some country but pay their taxes to tax havens. When the companies can employ the same thing without even investing anything in the countries they are operating it seems the playground is uneven for a lot of poorer players.
pjc50 7y ago
There is a tremendous book called "Where are all the customers' yachts?" on how the middlemen used to be the people making all the money: https://www.amazon.co.uk/Customers-Yachts-Street-Investment-Classics/dp/0471770892 https://www.amazon.co.uk/Customers-Yachts-Street-Investment-... Very rarely have individual investors from the "masses" done well out of the markets. If they did, they were usually upper-middle-class to start with. Until the 80s and the internet age there were distinct barriers to entry. What did happen was fund investment, at one remove - especially pensions, but also products like life assurance and annuities. The funds are one of the groups deploying machine learning now. > if we want a stock market that has any resemblance of fairness and democratic influence on the economy? I'm not sure that's the correct place to deploy the fairness levers against overall economic inequality. We come back to the need for a wealth tax to address dangerously large concentrations of capital destabilising the economy like cargo shifting in a plane.

by hnarn 7y ago

bogle 7y ago

Tim Harford in "The Undercover Economist" has a neat description of how the market isn't rational and really can't be predictable. So I'm not worried about machines in the market as they can't really do any better, I believe. As for the super-rich, they have asset managers who pool family funds. Even a small family fund will have millions invested and a small asset manager will have billions under management (pick your own major currency). Every millionaire will be doing the same thing so none of them get an advantage and going against the herd would be unlikely to pay off, short to mid-term (again, my reading of "The Undercover Economist").

short_sells_poo 7y ago

There are two big assumptions in your hypothesis that are incorrect in my opinion: 1. The prevalence if machine learning in trading. 2. That the game wasn't rigged against retail at a point in the past. First, there is very little (almost none) sophisticated ML in trading. Sure, if you call linear regression or simple classification tools ML, then yes, there's plenty of ML in finance, and has been for decades. If you think that there are super sophisticated DNNs running the majority of trading today, you are very far from the truth. The vast majority of trading is based on fairly simple models. It happens mostly based on human insight and exploiting specific market flows. Sure, almost every firm has some token ML overlay for marketing purposes because it was the fad of the recent years. They all want the public to think that they have some super secret sophisticated AI that gives then an edge. It's all a smoke screen. Almost none of them mean it in earnest. In truth, it is incredibly difficult to build anything resembling a scalable and robust strategy with complex ML tools. The reasons are too numerous to describe here. a very small handful of firms have the capability and mandate to actually use these tools with success, but their market participation is minute, basically negligible. Second, the game was always rigged in a sense. Big money could always buy privileged access to liquidity, information and tools. Nothing has changed here. If anything, the commoditization of all three of those things has lowered the barrier of entry. You can run a successful quant fund with a couple of friends now. That was much more difficult before.

tekkk 7y ago

There are benefits of scale, sure. But it's basically the same for other aspects. The rich can buy better education, invest in hobbies etc while the poor can't. So it's nothing new and i think because "AI" tools are getting so widespread it will actually offer better options for the poor. Same with free education tools getting more and more popular. So it's not all negative. But when speaking about very advanced tools that could, in theory, give unprecedented advantage to few rich people it would be in the best interest of governments to invent tax schemes that would redistribute their earnings more evenly. On the same note i think countries ought to implement digital taxes in the near future to not to become digital colonies where the internet companies have no employees and pay their taxes elsewhere, eg ireland. With margins as high as they are for digital goods where it's all ones and zeros traveling through cables, to support their own economy and skilled workforce something has to be done. It's already a problem where the rich can make their money in some country but pay their taxes to tax havens. When the companies can employ the same thing without even investing anything in the countries they are operating it seems the playground is uneven for a lot of poorer players.

pjc50 7y ago

There is a tremendous book called "Where are all the customers' yachts?" on how the middlemen used to be the people making all the money: https://www.amazon.co.uk/Customers-Yachts-Street-Investment-Classics/dp/0471770892 https://www.amazon.co.uk/Customers-Yachts-Street-Investment-... Very rarely have individual investors from the "masses" done well out of the markets. If they did, they were usually upper-middle-class to start with. Until the 80s and the internet age there were distinct barriers to entry. What did happen was fund investment, at one remove - especially pensions, but also products like life assurance and annuities. The funds are one of the groups deploying machine learning now. > if we want a stock market that has any resemblance of fairness and democratic influence on the economy? I'm not sure that's the correct place to deploy the fairness levers against overall economic inequality. We come back to the need for a wealth tax to address dangerously large concentrations of capital destabilising the economy like cargo shifting in a plane.