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Investing is like tech, its winner take all. This is like being surprised that Google dominates search

by codingslave 7y ago

endorphone 7y ago
Only it isn't like that at all.
- codingslave 7y ago
  areas like HFT are
  - smabie 7y ago
    HFT isn’t investing. Moreover, RenTec isn’t a HFT firm. No one knows exactly what they do, but I suspect they are primarily a market neutral short-term factor model firm with a very very good execution and slippage model.
  - endorphone 7y ago
    There are dozens of HFT players, all endlessly leap-frogging each other. Despite the fact that HFT is actually a relatively tiny market (the crumbs claimed by the HFT market account for at most a couple of billion a year), and is grossly overstated in significance. In the broader market there are tens of thousands of major players, and millions of smaller participants. There is no network effect, and the market is so enormous that it doesn't concentrate.
    - codingslave 7y ago
      Most HFT players are barely making money, theres a few that are actually highly profitable People in this thread are confusing beta and alpha, alpha is limited and competed for
smabie 7y ago
No it’s not. The market return isn’t zero-sum. Everyone can acheive it (by definition). Moreover, there’s a lot of different kinds of alpha in the market and no one firm is going to be able to capture anymore than a small chunk.
sjtindell 7y ago
Saying tech is winner take all, and investing is like that, seems wrong. I like the Google search comparison though - a few academics found a novel approach, then hired only the best and brightest and used technological advantage to grow. The comparison is quite apt actually.
sweeneyrod 7y ago
No, it's the exact opposite. The limit of how much money you can put through a given strategy mean there is an antieconomy of scale that encourages lots of small firms.
- codingslave 7y ago
  this is the complete opposite of true. I work in the industry, too busy to write up a response. But basically, the top five hedge funds are making most of the returns and are attracting most of the capital. the industry is consolidating
  - sweeneyrod 7y ago
    It's certainly plausible that the few best funds are outliers in terms of return. And I'm sure they attract a lot of capital in the sense that a lot of people want to invest in them, but that doesn't mean they allow it. As far as I can tell, the top 5 hedge funds by AUM have around 10% of the whole sector's capital. In comparison, the top 5 tech companies in the S&P500 have market caps summing to around 10% of the whole index (not just the tech sector).
  - texasbigdata 7y ago
    Dollar weighted? Real question. Take Bridgewater and a 5% return and that's billions in profit which likely represents a meaningful portion of the total profits made. Is that what you mean?

Investing is like tech, its winner take all. This is like being surprised that Google dominates search

endorphone 7y ago

Only it isn't like that at all.

codingslave 7y ago
areas like HFT are
- smabie 7y ago
  HFT isn’t investing. Moreover, RenTec isn’t a HFT firm. No one knows exactly what they do, but I suspect they are primarily a market neutral short-term factor model firm with a very very good execution and slippage model.
- endorphone 7y ago
  There are dozens of HFT players, all endlessly leap-frogging each other. Despite the fact that HFT is actually a relatively tiny market (the crumbs claimed by the HFT market account for at most a couple of billion a year), and is grossly overstated in significance. In the broader market there are tens of thousands of major players, and millions of smaller participants. There is no network effect, and the market is so enormous that it doesn't concentrate.
  - codingslave 7y ago
    Most HFT players are barely making money, theres a few that are actually highly profitable People in this thread are confusing beta and alpha, alpha is limited and competed for

smabie 7y ago

No it’s not. The market return isn’t zero-sum. Everyone can acheive it (by definition). Moreover, there’s a lot of different kinds of alpha in the market and no one firm is going to be able to capture anymore than a small chunk.

sjtindell 7y ago

Saying tech is winner take all, and investing is like that, seems wrong. I like the Google search comparison though - a few academics found a novel approach, then hired only the best and brightest and used technological advantage to grow. The comparison is quite apt actually.

sweeneyrod 7y ago

No, it's the exact opposite. The limit of how much money you can put through a given strategy mean there is an antieconomy of scale that encourages lots of small firms.

codingslave 7y ago
this is the complete opposite of true. I work in the industry, too busy to write up a response. But basically, the top five hedge funds are making most of the returns and are attracting most of the capital. the industry is consolidating
- sweeneyrod 7y ago
  It's certainly plausible that the few best funds are outliers in terms of return. And I'm sure they attract a lot of capital in the sense that a lot of people want to invest in them, but that doesn't mean they allow it. As far as I can tell, the top 5 hedge funds by AUM have around 10% of the whole sector's capital. In comparison, the top 5 tech companies in the S&P500 have market caps summing to around 10% of the whole index (not just the tech sector).
- texasbigdata 7y ago
  Dollar weighted? Real question. Take Bridgewater and a 5% return and that's billions in profit which likely represents a meaningful portion of the total profits made. Is that what you mean?