7 ms·

Mark Cuban: What Business is Wall Street in?

196 points by fraXis 15y ago

entrepreneurial 15y ago
They aren't "hackers", they're engineers
- gamble 15y ago
  Speaking as an engineer, no one in the financial industry remotely qualifies as an engineer. A real engineer applies physical laws to create a product with some certainty of functioning properly. Wall street 'engineers' create products that don't obey physical laws - and on a theoretical level, probably can't, since their very existence changes the rules of the market. The financial crisis also demonstrated that even the people creating these instruments don't understand them, much less the customers... and none of them particularly care if spectacular failures results, as long as they aren't the ones left holding the bag.
  - ycombiefan 15y ago
    get off your high horse. you have a superiority complex and you think you are better than software engineers. who the fuk r u to tell other people they are not true engineers? lol
  - starpilot 15y ago
    That would also apply to software engineers. What physical laws do they apply?
    - gamble 15y ago
      Most/all people who call themselves software engineers are not engineers. I'm not convinced that software engineering itself is actually a field of engineering, for that very reason. At most universities, software engineering is just a weak-sauce mashup of basic engineering classes, computer engineering, and compsci. I don't believe there is any agreement about the basic principles of software construction. Just because people call themselves software engineers and schools teach it as a discrete program, doesn't make them true engineers. There are plenty of schools that offer 'financial engineering' programs. IMO, programmers have a lot more in common with traditional artisan trades than engineering. They call themselves 'software engineers' because skilled technical workers prefer to associate with their cultural equals in an established white-collar profession than blue-collar craftsmen.
      - zmanji 15y ago
        I disagree, by definition in most jurisdictions, being an Engineer is being accredited by the local Engineering body. In Canada the Canadian Engineering Accreditation Board [1] accredits undergraduate programs that teach the field of Software Engineering. I attend such a program at the University of Waterloo [2][3]. After I graduate I can write the exams offered by Professional Engineers Ontario [4]. I think this makes Software Engineering a field of Engineering. In regards to what is taught at universities, my program involves courses on Engineering Design, Computer Engineering and Computer Science, but it also has classes on what constitutes Object-Oriented design, HCI, etc. I think those courses are more than enough to teach students on the basic principles of software construction. Also, what do you define the "basic principles of software construction" to be? [1] http://www.engineerscanada.ca/e/index.cfm http://www.engineerscanada.ca/e/index.cfm [2] http://uwaterloo.ca/ http://uwaterloo.ca/ [3] http://www.softeng.uwaterloo.ca/ http://www.softeng.uwaterloo.ca/ [4] http://www.peo.on.ca/ http://www.peo.on.ca/
        gamble 15y ago
        I guess we'll have to agree to disagree. I don't see accreditation of engineering programs as proof that software engineering is a legitimate field of engineering. The problem for me is that there don't seem to be any basic principles of software construction. Most programs just teach a selection of software development fad methodologies. A decade ago, most programs taught some variation of waterfall development. Now they tend to teach some variation of agile development. As far as I can tell, there's no scholarship to support one method over the other - it's pure fashion and industry demand. (The decline of academic research on software construction methods since the 80s is another problem) Look at software engineering programs in another ten years and I'm sure you'll see a different mix of classes emphasizing the business trends of the day. In comparison, you could look at the curriculum for almost any electrical engineering program from thirty years ago and you would see almost the same classes as a modern program: circuit theory, E&M, electric machines, control, communication systems, etc. The only significant difference would be the addition of courses on software and digital electronics.
        15y ago
chopsueyar 15y ago
Remember your roots, Cuban! http://www.nytimes.com/2000/03/05/magazine/the-idled-workaholic.html http://www.nytimes.com/2000/03/05/magazine/the-idled-workaho...
Astrohacker 15y ago
It's odd to me that he thinks Wall Street was ever in the business of "creating capital for business". The only thing that can create capital is producing more than you consume and saving the difference. Now I have nothing against trading, speculating, or whatever else most people on Wall Street do. However, I think fractional reserve banking, which creates new money, is an extremely destructive practice equivalent to counterfeiting. Presumably it's fractional reserve banking that he thinks "creates capital". I recently gave a highly upvoted description of why fractional reserve banks are a scam here: http://news.ycombinator.com/item?id=2844528 http://news.ycombinator.com/item?id=2844528 It's a myth that banks create capital by employing fractional reserves. All they do is take purchasing power from some people, give it to themselves, and then charge a toll (interest) to the people they loan it to. It's unethical and it should be illegal. Unfortunately this isn't going to change until people stop believing the myth that printing new money is the same as creating capital.
- bwanab 15y ago
  I'm assuming that he doesn't really mean "creating capital..." for exactly the reasons that you give. But, there was a day that Wall Street was in the business of capital formation - pulling together relatively small bits of capital from large numbers of investors to apply that capital to projects that would certainly be beyond the reach of normal (i.e. not government) investors. This is a valid business - one which sadly is a smaller and smaller part of what Wall Street does.
- rorrr 15y ago
  > The only thing that can create capital is producing more than you consume and saving the difference Here are a few ways to create capital without producing anything: 1) Buy wholesale, sell retail 2) Buy in area A, sell for more in area B. 3) Buy all of product X, create a monopoly, sell at whatever price you want 4) Buy product X, hold until price goes up (or manipulate the price), sell 5) Steal
  - Astrohacker 15y ago
    Stealing doesn't create capital. It moves it. Your points 3 and 4 also indicate you don't seem to understand the difference between creating capital and moving it. As for buying and selling stuff for a profit, you may not be producing stuff with your own hands, but you are enabling more production to occur.
veyron 15y ago
I don't believe that Wall Street is well-intentioned in 99.5% of its actions, but still Wall Street creates capital for business: when a company goes through its motions to file and launch an IPO, the banks are the ones who commit to finding X investor dollars. It's easy to ignore the difficulties of that process, given the glut of VC firms champing at the bit to flood the next startup with cash, but it still plays a role.
- gamble 15y ago
  The difference between Wall Street today and a century ago is the availability of capital. A century ago capital was much more scarce and was mostly held by wealthy private (mostly European) individuals. The stock market was one of the few ways for American companies connect with those people and fund expansion. Capital is anything but scarce today. Where a century ago the vast majority of people bought savings bonds, if they were wealthy enough to save anything, today the majority of adults need to own stock to fund their retirement. (Itself a novel concept) In addition, vast amounts of capital are held by private equity groups, pension funds, sovereign wealth funds, etc - all chasing the few opportunities for outsized returns. At some point we reached an inflection point where the need of capital to obtain a return exceeded the demand for capital. Since then the overriding goal of the financial industry has been to obtain those returns by taking them from another player. The original function of providing capital for corporate expansion is almost irrelevant.
cpeterso 15y ago
At a very basic level, I don't understand the stock market. A private company can raise capital through an IPO. But what are the investors really buying? The company might pay a dividend, but many don't. Investors can purportedly elect the board of directors, but in reality, few investors have any influence. So what (liquid) investment have the shareholders bought that is actually appreciating in value?
- rorrr 15y ago
  Growth
  - yuhong 15y ago
    To be more precise, stock price growth. I think in most cases it is better to do dividends and move away from stock price based compensation.
    - true_religion 15y ago
      If you want that then buy established companies. Otherwise, as an investor it's better to keep money within the company to fuel its growth so it can pay better dividends in the future. This is similar to how startup founders often don't draw a salary just to have more money to invest in the growth of their company.
- mynegation 15y ago
  Strictly speaking, investors buy a part of a company, buy contributing to it's equity. If company is expected to grow without putting on too much debt, its equity will grow too and a fixed part of it (if we forget about dilution for a moment) is expected to appreciate as well.
- sliverstorm 15y ago
  If a company is not paying dividends, it is (hopefully) reinvesting in itself and growing. Theoretically, all growing companies will reach one of the following points: 1) It will stop growing, and begin paying out dividends 2) It will be acquired 3) It will fold So, ownership of stocks that do not pay dividends is speculative- eventually, it will either fold or net you money. This is not liquid, of course- stock trading is the liquidation of this speculation, if that makes sense, in the same way that you hold a bond in anticipation of future returns, but you could sell the bond for more immediate gains. (As I understand it, the reason why a growing company will, in theory, eventually pay out dividends rather than just keeping wads of cash is because once the return of reinvestment tapers off, major shareholders will band together to force the company to pay out dividends)
T_S_ 15y ago
Simple solution. Penny a share transfer tax for all trades. Corresponding amounts on bonds and other instruments. Watch the amazing reduction in volume and volatility. Then watch the return to focus on value trading. Like that idea? Next, open up public companies books. Not in the formal but phony SEC/GAAP way. No, I mean realtime journal entries. I will do the accounting myself. You can too. Link the trading tax to how often the company updates its numbers. Want more liquidity for your stock? Give more information. Still on board? Ok, now if a company releases forecasts, they must release the model they used to generate the forecast. Yes, the code. Doesn't matter how simple or complex. Bullshit forecasts will be self-evident. Data for better ones will be more available. Now all those things would make finance productive again by putting the focus back on capital allocation and moving it away from trading, speculation and lies. Make regulators focus on enforcing real transparency, since they don't know how to regulate behavior. This takes away the upside from the regulator/industry revolving door. It would be a great world for analysts and investors. In olden days (1980) all this would have been technically infeasible. Now we have the computing power to handle it.
- deleted 15y ago
  [deleted]
- jrockway 15y ago
  Penny a share transfer tax for all trades. What's a "share"? Equities are one of many financial markets, but not the only one and not necessarily the most important. People trade bonds, treasuries, foreign currencies, commodities, interest rates and various derivatives on top of these securities: equity options, FX options, interest rate swap options, FX forwards, etc., etc. How would you tax options contracts? Tax when exercised? But you wanted it to be a trade tax, so should it be a dollar per standard contract? Your model is too simple and does not reflect the reality of the financial markets. And anyway, if there's one thing banks are great about, it's passing on the fees to their clients. A one cent per-share transfer tax doesn't mean Wall Street is out of business. It means you won't have enough money in your 401k to retire. Still on board? Ok, now if a company releases forecasts, they must release the model they used to generate the forecast. Yes, the code. Doesn't matter how simple or complex. Bullshit forecasts will be self-evident. Data for better ones will be more available. Why do companies have to have "a model"? You wouldn't ask da Vinci for the "code" behind the Mona Lisa; why should accounting be automatically less creative than painting? All regulations will do is force companies to get money from source other than a public offering -- private investment, bond issues, etc. Anyway, I'm not saying that taxing trades is a bad idea, I'm saying that your idea doesn't make much sense in the real world. Communism is a good idea. On paper.
dkarl 15y ago
It is getting increasingly difficult to just invest in companies you believe in. This is a key point, and he doesn't justify it at all. Are value investors negatively affected by someone making a penny when the value investor makes a $1000 trade? Or are they positively affected by liquidity? He is either unaware that it's a controversy with plenty of history, or he prefers to gloss over it. He seems bothered by the fact that there's a lot going on besides simple value investing, as if any other activity must be detrimental to the operation of the market. He seems to be implying that the other activities on Wall Street are preventing stock values from reflecting investors' rational estimates of the value of the underlying businesses. Seems to be, I can't be entirely sure. If that's his point, he needs to muster some evidence, because plenty of people claim the opposite. Individual investors and the funds that just invest in stocks and bonds are not going to crash the market. Individual investors are very much among those who panic and sell when the market goes down, or who establish stop-loss orders with their brokers that cause market losses to irrationally cascade. Plenty of individual investors are eager to turn into gold bugs at the faintest whiff of a downturn. If amateur investors or stock analysts are better at value investing than "traders", they should eat the traders' lunch when the market panics. If it's the other way around, then the traders aren't the ones crashing the market.
- yummyfajitas 15y ago
  He also seems to miss the point that if it is more difficult to invest in value companies, it's because the market is doing a better job of value investing. I.e., once upon a time, Promising Tech, Inc. might have been a great value play. This means that the stock price of PT was too low. In today's market, the stock price of PT is set at a level where you don't know whether to buy or short - that is to say, the stock price of PT is just right. PT is getting exactly as much money as they deserve. Sounds like Cuban is just annoyed that Wall St. is doing a better job than he is.
  - MikeCapone 15y ago
    Are you saying that the Efficient Market Theory (EMT) is correct? The market is mostly efficient, but there are still many efficiencies that can be exploited by people who do their homework and are ready to stick around through volatility and/or wait for catalysts.
snagage 15y ago
Being a private investor, I agree a lot with what Cuban is saying. Strangely enough Australia, which Cuban suggests he's been investing in, has a few investor friendly (or trader unfriendly) regulations built in. 1. Hold a stock for over a year and capital gains tax is halved. 2. Tax (franking) credits are given out when dividends are paid. This stops double-taxing and encourages companies to pay dividends and investors to demand them. 3. You must hold a stock for 45 days to take advantage of the franking credits if you accumulate more than $5k worth.
- westicle 15y ago
  Great summary of the tax advantages available for buy and hold investors in Australia. How would these concepts integrate with the US tax treatment of stock trading? As far as I know there is no imputation of dividends under USA tax law - capital gains tax concessions might be of some benefit to value investors. I suspect they wouldn't alleviate Cuban's concerns over the impact of HFT and exploiting market movements. A flat tax on trades seems like a more effective way to reduce the prevalence of those practices (for better or worse).
- cturner 15y ago
  That's a rose-tinted view. All of the things you list as investor-friendly involve exceptions whereby the government fails to swipe money from you. The effect of policies that tax most investment scenarios is to discourage investment because it reduces your options. Consider this situation: you think that the drop in the ASX is unjustified and want to speculate on this. You're discouraged from doing it: even if you pick it right and provide liquidity when the market is dropping, they'll tax your upside when you to exit. That is, unless they sit on it for those periods, which discourages the first interaction because on that kind of trade you're not necessarily going to want liquidity tied up for a long period. You get all the risk, but in addition the government eats into your upside. A quirk of the Australian arrangement - non-residents aren't subject to capital gains tax. This puts them in a better position to supply liquidity in opportunity times, which some people consider the current market to be.
lotharbot 15y ago
Here's my response from the HN discussion a year ago [0]: ----- If Mark Cuban thinks the market is now all about exotic derivatives rather than buying stock in companies you believe in, he's listening to the wrong people. Commission-based brokers talk about exotic derivatives; Warren Buffet still talks about buy-and-hold. The biggest wins and losses in day trading will come from exotic derivatives simply by their nature: they're highly leveraged bets. Those firms that create the vehicles to make those bets aren't "hackers", they're "Vegas". You ask for a bet against the housing market or for cattle, they set up a structure to let you make that bet, and you play the odds -- and you might beat the other betters in the market over the short term, but it's the house (taking its percentage off the top) that always wins long term. Mark Cuban is right to be uncomfortable playing that game. Meanwhile, people like Warren Buffet continue to look for healthy companies that are underpriced and buy into them for the long term. Day-to-day the market might be driven by short-term bets, but over the course of 3 decades it's still driven by the fundamental health of companies. If anything, those who care about "the performance of specific companies and their returns" benefit from the fact that occasionally, as a result of day traders' bets, healthy companies' stocks get sold at bargain prices. If you try to play Vegas' game, you'll probably get burned. But if you stand back, watch the game, and buy when their game creates a bargain price on good long-term stocks, you stand to get very solid returns. ----- [0] http://news.ycombinator.com/item?id=1332422 http://news.ycombinator.com/item?id=1332422
- gamble 15y ago
  Warren Buffet isn't the average value investor. He rarely buys stock on the open market. The average investor doesn't have his ability to buy control of the company, or to direct profits from a declining cash cow into another company with more growth potential. I suspect Buffet would agree with Cuban on the danger of buying common stock based purely on technical analysis.
  - rfurmani 15y ago
    Actually, Buffet has time and again said that if he had only 0.5-1.0 million to manage he could consistently get 50% a year. His greater capital does give him special access to management, but also greatly restricts where he can invest. I'm part of a fund that does automatic value investing based on an analysis of the fundamentals of the universe of stocks, and you can do quite well for yourself. Here Graham's "the intelligent investor" is still the bible
levigross 15y ago
I don't mean to praise wall street but Mark Cuban made his initial cash from stock options the same things the people on wall street trade. So he knows very well what businesses they are in.. They made him rich!
Be-The-Water 15y ago
I think he is right but the biggest issue is that Wall Street has become solely a place for 'transfer of wealth'. They do not care about value or know what it is, i.e. people like Warren Buffet stepping in recognizing value and investing when the price does not match the value. But I think the biggest problem is the market is so huge and the more money you feed it the more irrational it gets, doesn't matter wether algorithms or humans are doing the trading. Irrational trading creates bubbles and they gamble value away until the bubble burst. And even after the bubble burst its just a reset to the market. I do not know where it is headed but I think one day countries will realize that they were better off with out mr.market because when the value companies build are traded away and in turn the middle class/country suffers, wall street walks away with the money, i.e. the house always wins in the end.
jasonzemos 15y ago
Cuban's tl;dr point is that Wall Street has become a simulacrum. Now go read Baudrillard.
throwaway1129 15y ago
HFTs and hedge funds are very different entities. If you want to blame someone for man-made crashes, blame the people with large capital outlays, who are forced to unwind their positions when the equity goes down (or up) enough, thus further exacerbating the movement.
Jarred 15y ago
Arguably, they're in the business of making money (and nothing else).
ryanisinallofus 15y ago
"...no capital gains tax on any shares of stock (private or public company) held for 5 years or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years." Wow. That would change Wall Street in a hurry. I don't know the full macro economic effect this would have on our system but I know the effect it would have on my personal investment. "And solutions won’t come from bureaucrats trying to prevent the traders from hacking the system." This is obvious to anyone... except lawmakers unfortunately. Damn. I think of Mark Cuban as a one hit wonder from the golden ages who freaks out at basketball games but this article was pretty damn intriguing.
- angstrom 15y ago
  I really wish this wasn't considered ground breaking. The same has been spoken of CEO compensation vesting rather than guaranteed compensation packages. The idea of separating measured performance from compensation is a joke.
  - msg 15y ago
    What metric could you come up with that wouldn't be gamed? Other than say, overachieving profit targets. The CEO has a lot of latitude to screw the company for their benefit.
troyastorino 15y ago
> To traders, whether day traders or high frequency or somewhere in between, Wall Street has nothing to do with creating capital for businesses, its original goal. Wall Street is a platform. It’s a platform to be exploited by every technological and intellectual means possible. Just because the day to day work of traders on Wall Street has been abstracted away from it's original intention doesn't mean that it doesn't continue to serve that function. When working in any large system, your focus can be absorbed by whatever smaller task you are working on, and you can loose sight of what your piece of the puzzle does. When working on a software team of many hundreds of developers, it's easily possible that the code you are working on is not at all specific to the problem you're solving. That doesn't mean that your work isn't helping to solve the problem. The financial system is very complex, and I won't pretend to have the expertise or knowledge to explicitly explain the service that high frequency traders, for example, are providing. The way Wall Street currently operates might not be the most efficient system for allocating capital. But I don't think that you can immediately write off modern trading on the basis that it doesn't directly deal with the original purpose of Wall Street.
kevinpet 15y ago
The exchanges operate for the benefit of the listed companies. NASDAQ and NYSE can compete on features and trading rules. Leaving aside the problem of company officers trying to screw the stockholders (I'm not a fan of stock classes that give different voting rights), companies will list wherever the rules give the highest value to their current shareholders. And the highest value to the shareholders is provided by the market with the parasitic HFTs. I don't understand. I though Mark Cuban was a fairly sophisticated investor, but he seems to be marveling that Australia taxes short term capital as ordinary income and LTCG at a lower rate, which is of course exactly what the US does.
- astrec 15y ago
  What you describe applies to investors. He's "marvelling" over the parallel tax system for traders where capital income is treated as revenue.
ulf 15y ago
Wall street just followed a general theme among banks. Once upon a time they were institutions built to control capital flow, from where it was available to where it was needed, to provide some social value by allowing enterprises to thrive. But apparently the credit interest was not a big enough margin, so they decided to do all kinds of other shit, investment banking was born. Which mostly makes rich people richer, without any kind of social benefit. Wall Street just followed that model.
yason 15y ago
It is getting increasingly difficult to just invest in companies you believe in. Uh, I think it goes: Buy stocks when it's cheap in comparison to your valuation metric and hold. Collect dividends, or if the stock becomes too overvalued, sell for profit. Start from beginning. What did I miss?
- javanix 15y ago
  You missed the part where creating that valuation metric is becoming harder and harder due to an increasingly chaotic and fast-moving market.
  - dkarl 15y ago
    If you're just trying to predict how a stock's price will change in the next couple of weeks or months under whatever market conditions happen to prevail over that time period, that's speculation. That's what the vast majority of individual investors engage in -- "I think the price of this stock will go up, so I'm going to buy it." Arguing that speculation is hard in a chaotic market gets no sympathy. Actual value investing means you think you have an idea of what shares in a particular company are worth, plus faith that the market price of a stock will reflect that underlying value over the long term. Arguing that value investing is affected requires arguing that market chaos has the power to prevent market prices from reflecting underlying value over the long haul. That's a pretty big claim and requires some justification.
    - three14 15y ago
      Doesn't gold behave that way? Market forces prevent gold from reflecting the value of using gold for jewelry or industry or whatever else other than playing the market. It seems like an unexceptional claim that there are other financial instruments that are similar.
      - dkarl 15y ago
        Gold isn't a good example of any market principle because of its historical and symbolic significance. There's a reason the term "gold bug" exists but not "wheat bug", and there's a reason it was a perfect match for Glenn Beck's theatrics. Who hasn't had a conversation in a bar about the price of gold? Who has had a conversation in a bar about the price of sugar or aluminum? Gold is a magnet for all kinds of emotion, from paranoia to get-rich-quick mania.
known 15y ago
Govt will not impose new taxes. HNIs and Corporations are bullying Govt that they'll permanently move their businesses to low cost countries.

196 points by fraXis 15y ago

entrepreneurial 15y ago

They aren't "hackers", they're engineers

gamble 15y ago
Speaking as an engineer, no one in the financial industry remotely qualifies as an engineer. A real engineer applies physical laws to create a product with some certainty of functioning properly. Wall street 'engineers' create products that don't obey physical laws - and on a theoretical level, probably can't, since their very existence changes the rules of the market. The financial crisis also demonstrated that even the people creating these instruments don't understand them, much less the customers... and none of them particularly care if spectacular failures results, as long as they aren't the ones left holding the bag.
- ycombiefan 15y ago
  get off your high horse. you have a superiority complex and you think you are better than software engineers. who the fuk r u to tell other people they are not true engineers? lol
- starpilot 15y ago
  That would also apply to software engineers. What physical laws do they apply?
  - gamble 15y ago
    Most/all people who call themselves software engineers are not engineers. I'm not convinced that software engineering itself is actually a field of engineering, for that very reason. At most universities, software engineering is just a weak-sauce mashup of basic engineering classes, computer engineering, and compsci. I don't believe there is any agreement about the basic principles of software construction. Just because people call themselves software engineers and schools teach it as a discrete program, doesn't make them true engineers. There are plenty of schools that offer 'financial engineering' programs. IMO, programmers have a lot more in common with traditional artisan trades than engineering. They call themselves 'software engineers' because skilled technical workers prefer to associate with their cultural equals in an established white-collar profession than blue-collar craftsmen.
    - zmanji 15y ago
      I disagree, by definition in most jurisdictions, being an Engineer is being accredited by the local Engineering body. In Canada the Canadian Engineering Accreditation Board [1] accredits undergraduate programs that teach the field of Software Engineering. I attend such a program at the University of Waterloo [2][3]. After I graduate I can write the exams offered by Professional Engineers Ontario [4]. I think this makes Software Engineering a field of Engineering. In regards to what is taught at universities, my program involves courses on Engineering Design, Computer Engineering and Computer Science, but it also has classes on what constitutes Object-Oriented design, HCI, etc. I think those courses are more than enough to teach students on the basic principles of software construction. Also, what do you define the "basic principles of software construction" to be? [1] http://www.engineerscanada.ca/e/index.cfm http://www.engineerscanada.ca/e/index.cfm [2] http://uwaterloo.ca/ http://uwaterloo.ca/ [3] http://www.softeng.uwaterloo.ca/ http://www.softeng.uwaterloo.ca/ [4] http://www.peo.on.ca/ http://www.peo.on.ca/
      - gamble 15y ago
        I guess we'll have to agree to disagree. I don't see accreditation of engineering programs as proof that software engineering is a legitimate field of engineering. The problem for me is that there don't seem to be any basic principles of software construction. Most programs just teach a selection of software development fad methodologies. A decade ago, most programs taught some variation of waterfall development. Now they tend to teach some variation of agile development. As far as I can tell, there's no scholarship to support one method over the other - it's pure fashion and industry demand. (The decline of academic research on software construction methods since the 80s is another problem) Look at software engineering programs in another ten years and I'm sure you'll see a different mix of classes emphasizing the business trends of the day. In comparison, you could look at the curriculum for almost any electrical engineering program from thirty years ago and you would see almost the same classes as a modern program: circuit theory, E&M, electric machines, control, communication systems, etc. The only significant difference would be the addition of courses on software and digital electronics.
        15y ago

chopsueyar 15y ago

Remember your roots, Cuban! http://www.nytimes.com/2000/03/05/magazine/the-idled-workaholic.html http://www.nytimes.com/2000/03/05/magazine/the-idled-workaho...

Astrohacker 15y ago

It's odd to me that he thinks Wall Street was ever in the business of "creating capital for business". The only thing that can create capital is producing more than you consume and saving the difference. Now I have nothing against trading, speculating, or whatever else most people on Wall Street do. However, I think fractional reserve banking, which creates new money, is an extremely destructive practice equivalent to counterfeiting. Presumably it's fractional reserve banking that he thinks "creates capital". I recently gave a highly upvoted description of why fractional reserve banks are a scam here: http://news.ycombinator.com/item?id=2844528 http://news.ycombinator.com/item?id=2844528 It's a myth that banks create capital by employing fractional reserves. All they do is take purchasing power from some people, give it to themselves, and then charge a toll (interest) to the people they loan it to. It's unethical and it should be illegal. Unfortunately this isn't going to change until people stop believing the myth that printing new money is the same as creating capital.

bwanab 15y ago
I'm assuming that he doesn't really mean "creating capital..." for exactly the reasons that you give. But, there was a day that Wall Street was in the business of capital formation - pulling together relatively small bits of capital from large numbers of investors to apply that capital to projects that would certainly be beyond the reach of normal (i.e. not government) investors. This is a valid business - one which sadly is a smaller and smaller part of what Wall Street does.
rorrr 15y ago
> The only thing that can create capital is producing more than you consume and saving the difference Here are a few ways to create capital without producing anything: 1) Buy wholesale, sell retail 2) Buy in area A, sell for more in area B. 3) Buy all of product X, create a monopoly, sell at whatever price you want 4) Buy product X, hold until price goes up (or manipulate the price), sell 5) Steal
- Astrohacker 15y ago
  Stealing doesn't create capital. It moves it. Your points 3 and 4 also indicate you don't seem to understand the difference between creating capital and moving it. As for buying and selling stuff for a profit, you may not be producing stuff with your own hands, but you are enabling more production to occur.

veyron 15y ago

I don't believe that Wall Street is well-intentioned in 99.5% of its actions, but still Wall Street creates capital for business: when a company goes through its motions to file and launch an IPO, the banks are the ones who commit to finding X investor dollars. It's easy to ignore the difficulties of that process, given the glut of VC firms champing at the bit to flood the next startup with cash, but it still plays a role.

gamble 15y ago
The difference between Wall Street today and a century ago is the availability of capital. A century ago capital was much more scarce and was mostly held by wealthy private (mostly European) individuals. The stock market was one of the few ways for American companies connect with those people and fund expansion. Capital is anything but scarce today. Where a century ago the vast majority of people bought savings bonds, if they were wealthy enough to save anything, today the majority of adults need to own stock to fund their retirement. (Itself a novel concept) In addition, vast amounts of capital are held by private equity groups, pension funds, sovereign wealth funds, etc - all chasing the few opportunities for outsized returns. At some point we reached an inflection point where the need of capital to obtain a return exceeded the demand for capital. Since then the overriding goal of the financial industry has been to obtain those returns by taking them from another player. The original function of providing capital for corporate expansion is almost irrelevant.

cpeterso 15y ago

At a very basic level, I don't understand the stock market. A private company can raise capital through an IPO. But what are the investors really buying? The company might pay a dividend, but many don't. Investors can purportedly elect the board of directors, but in reality, few investors have any influence. So what (liquid) investment have the shareholders bought that is actually appreciating in value?

rorrr 15y ago
Growth
- yuhong 15y ago
  To be more precise, stock price growth. I think in most cases it is better to do dividends and move away from stock price based compensation.
  - true_religion 15y ago
    If you want that then buy established companies. Otherwise, as an investor it's better to keep money within the company to fuel its growth so it can pay better dividends in the future. This is similar to how startup founders often don't draw a salary just to have more money to invest in the growth of their company.
mynegation 15y ago
Strictly speaking, investors buy a part of a company, buy contributing to it's equity. If company is expected to grow without putting on too much debt, its equity will grow too and a fixed part of it (if we forget about dilution for a moment) is expected to appreciate as well.
sliverstorm 15y ago
If a company is not paying dividends, it is (hopefully) reinvesting in itself and growing. Theoretically, all growing companies will reach one of the following points: 1) It will stop growing, and begin paying out dividends 2) It will be acquired 3) It will fold So, ownership of stocks that do not pay dividends is speculative- eventually, it will either fold or net you money. This is not liquid, of course- stock trading is the liquidation of this speculation, if that makes sense, in the same way that you hold a bond in anticipation of future returns, but you could sell the bond for more immediate gains. (As I understand it, the reason why a growing company will, in theory, eventually pay out dividends rather than just keeping wads of cash is because once the return of reinvestment tapers off, major shareholders will band together to force the company to pay out dividends)

T_S_ 15y ago

Simple solution. Penny a share transfer tax for all trades. Corresponding amounts on bonds and other instruments. Watch the amazing reduction in volume and volatility. Then watch the return to focus on value trading. Like that idea? Next, open up public companies books. Not in the formal but phony SEC/GAAP way. No, I mean realtime journal entries. I will do the accounting myself. You can too. Link the trading tax to how often the company updates its numbers. Want more liquidity for your stock? Give more information. Still on board? Ok, now if a company releases forecasts, they must release the model they used to generate the forecast. Yes, the code. Doesn't matter how simple or complex. Bullshit forecasts will be self-evident. Data for better ones will be more available. Now all those things would make finance productive again by putting the focus back on capital allocation and moving it away from trading, speculation and lies. Make regulators focus on enforcing real transparency, since they don't know how to regulate behavior. This takes away the upside from the regulator/industry revolving door. It would be a great world for analysts and investors. In olden days (1980) all this would have been technically infeasible. Now we have the computing power to handle it.

deleted 15y ago
[deleted]
jrockway 15y ago
Penny a share transfer tax for all trades. What's a "share"? Equities are one of many financial markets, but not the only one and not necessarily the most important. People trade bonds, treasuries, foreign currencies, commodities, interest rates and various derivatives on top of these securities: equity options, FX options, interest rate swap options, FX forwards, etc., etc. How would you tax options contracts? Tax when exercised? But you wanted it to be a trade tax, so should it be a dollar per standard contract? Your model is too simple and does not reflect the reality of the financial markets. And anyway, if there's one thing banks are great about, it's passing on the fees to their clients. A one cent per-share transfer tax doesn't mean Wall Street is out of business. It means you won't have enough money in your 401k to retire. Still on board? Ok, now if a company releases forecasts, they must release the model they used to generate the forecast. Yes, the code. Doesn't matter how simple or complex. Bullshit forecasts will be self-evident. Data for better ones will be more available. Why do companies have to have "a model"? You wouldn't ask da Vinci for the "code" behind the Mona Lisa; why should accounting be automatically less creative than painting? All regulations will do is force companies to get money from source other than a public offering -- private investment, bond issues, etc. Anyway, I'm not saying that taxing trades is a bad idea, I'm saying that your idea doesn't make much sense in the real world. Communism is a good idea. On paper.

dkarl 15y ago

It is getting increasingly difficult to just invest in companies you believe in. This is a key point, and he doesn't justify it at all. Are value investors negatively affected by someone making a penny when the value investor makes a $1000 trade? Or are they positively affected by liquidity? He is either unaware that it's a controversy with plenty of history, or he prefers to gloss over it. He seems bothered by the fact that there's a lot going on besides simple value investing, as if any other activity must be detrimental to the operation of the market. He seems to be implying that the other activities on Wall Street are preventing stock values from reflecting investors' rational estimates of the value of the underlying businesses. Seems to be, I can't be entirely sure. If that's his point, he needs to muster some evidence, because plenty of people claim the opposite. Individual investors and the funds that just invest in stocks and bonds are not going to crash the market. Individual investors are very much among those who panic and sell when the market goes down, or who establish stop-loss orders with their brokers that cause market losses to irrationally cascade. Plenty of individual investors are eager to turn into gold bugs at the faintest whiff of a downturn. If amateur investors or stock analysts are better at value investing than "traders", they should eat the traders' lunch when the market panics. If it's the other way around, then the traders aren't the ones crashing the market.

yummyfajitas 15y ago
He also seems to miss the point that if it is more difficult to invest in value companies, it's because the market is doing a better job of value investing. I.e., once upon a time, Promising Tech, Inc. might have been a great value play. This means that the stock price of PT was too low. In today's market, the stock price of PT is set at a level where you don't know whether to buy or short - that is to say, the stock price of PT is just right. PT is getting exactly as much money as they deserve. Sounds like Cuban is just annoyed that Wall St. is doing a better job than he is.
- MikeCapone 15y ago
  Are you saying that the Efficient Market Theory (EMT) is correct? The market is mostly efficient, but there are still many efficiencies that can be exploited by people who do their homework and are ready to stick around through volatility and/or wait for catalysts.

snagage 15y ago

Being a private investor, I agree a lot with what Cuban is saying. Strangely enough Australia, which Cuban suggests he's been investing in, has a few investor friendly (or trader unfriendly) regulations built in. 1. Hold a stock for over a year and capital gains tax is halved. 2. Tax (franking) credits are given out when dividends are paid. This stops double-taxing and encourages companies to pay dividends and investors to demand them. 3. You must hold a stock for 45 days to take advantage of the franking credits if you accumulate more than $5k worth.

westicle 15y ago
Great summary of the tax advantages available for buy and hold investors in Australia. How would these concepts integrate with the US tax treatment of stock trading? As far as I know there is no imputation of dividends under USA tax law - capital gains tax concessions might be of some benefit to value investors. I suspect they wouldn't alleviate Cuban's concerns over the impact of HFT and exploiting market movements. A flat tax on trades seems like a more effective way to reduce the prevalence of those practices (for better or worse).
cturner 15y ago
That's a rose-tinted view. All of the things you list as investor-friendly involve exceptions whereby the government fails to swipe money from you. The effect of policies that tax most investment scenarios is to discourage investment because it reduces your options. Consider this situation: you think that the drop in the ASX is unjustified and want to speculate on this. You're discouraged from doing it: even if you pick it right and provide liquidity when the market is dropping, they'll tax your upside when you to exit. That is, unless they sit on it for those periods, which discourages the first interaction because on that kind of trade you're not necessarily going to want liquidity tied up for a long period. You get all the risk, but in addition the government eats into your upside. A quirk of the Australian arrangement - non-residents aren't subject to capital gains tax. This puts them in a better position to supply liquidity in opportunity times, which some people consider the current market to be.

lotharbot 15y ago

Here's my response from the HN discussion a year ago [0]: ----- If Mark Cuban thinks the market is now all about exotic derivatives rather than buying stock in companies you believe in, he's listening to the wrong people. Commission-based brokers talk about exotic derivatives; Warren Buffet still talks about buy-and-hold. The biggest wins and losses in day trading will come from exotic derivatives simply by their nature: they're highly leveraged bets. Those firms that create the vehicles to make those bets aren't "hackers", they're "Vegas". You ask for a bet against the housing market or for cattle, they set up a structure to let you make that bet, and you play the odds -- and you might beat the other betters in the market over the short term, but it's the house (taking its percentage off the top) that always wins long term. Mark Cuban is right to be uncomfortable playing that game. Meanwhile, people like Warren Buffet continue to look for healthy companies that are underpriced and buy into them for the long term. Day-to-day the market might be driven by short-term bets, but over the course of 3 decades it's still driven by the fundamental health of companies. If anything, those who care about "the performance of specific companies and their returns" benefit from the fact that occasionally, as a result of day traders' bets, healthy companies' stocks get sold at bargain prices. If you try to play Vegas' game, you'll probably get burned. But if you stand back, watch the game, and buy when their game creates a bargain price on good long-term stocks, you stand to get very solid returns. ----- [0] http://news.ycombinator.com/item?id=1332422 http://news.ycombinator.com/item?id=1332422

gamble 15y ago
Warren Buffet isn't the average value investor. He rarely buys stock on the open market. The average investor doesn't have his ability to buy control of the company, or to direct profits from a declining cash cow into another company with more growth potential. I suspect Buffet would agree with Cuban on the danger of buying common stock based purely on technical analysis.
- rfurmani 15y ago
  Actually, Buffet has time and again said that if he had only 0.5-1.0 million to manage he could consistently get 50% a year. His greater capital does give him special access to management, but also greatly restricts where he can invest. I'm part of a fund that does automatic value investing based on an analysis of the fundamentals of the universe of stocks, and you can do quite well for yourself. Here Graham's "the intelligent investor" is still the bible

levigross 15y ago

I don't mean to praise wall street but Mark Cuban made his initial cash from stock options the same things the people on wall street trade. So he knows very well what businesses they are in.. They made him rich!

Be-The-Water 15y ago

I think he is right but the biggest issue is that Wall Street has become solely a place for 'transfer of wealth'. They do not care about value or know what it is, i.e. people like Warren Buffet stepping in recognizing value and investing when the price does not match the value. But I think the biggest problem is the market is so huge and the more money you feed it the more irrational it gets, doesn't matter wether algorithms or humans are doing the trading. Irrational trading creates bubbles and they gamble value away until the bubble burst. And even after the bubble burst its just a reset to the market. I do not know where it is headed but I think one day countries will realize that they were better off with out mr.market because when the value companies build are traded away and in turn the middle class/country suffers, wall street walks away with the money, i.e. the house always wins in the end.

jasonzemos 15y ago

Cuban's tl;dr point is that Wall Street has become a simulacrum. Now go read Baudrillard.

throwaway1129 15y ago

HFTs and hedge funds are very different entities. If you want to blame someone for man-made crashes, blame the people with large capital outlays, who are forced to unwind their positions when the equity goes down (or up) enough, thus further exacerbating the movement.

Jarred 15y ago

Arguably, they're in the business of making money (and nothing else).

ryanisinallofus 15y ago

"...no capital gains tax on any shares of stock (private or public company) held for 5 years or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years." Wow. That would change Wall Street in a hurry. I don't know the full macro economic effect this would have on our system but I know the effect it would have on my personal investment. "And solutions won’t come from bureaucrats trying to prevent the traders from hacking the system." This is obvious to anyone... except lawmakers unfortunately. Damn. I think of Mark Cuban as a one hit wonder from the golden ages who freaks out at basketball games but this article was pretty damn intriguing.

angstrom 15y ago
I really wish this wasn't considered ground breaking. The same has been spoken of CEO compensation vesting rather than guaranteed compensation packages. The idea of separating measured performance from compensation is a joke.
- msg 15y ago
  What metric could you come up with that wouldn't be gamed? Other than say, overachieving profit targets. The CEO has a lot of latitude to screw the company for their benefit.

troyastorino 15y ago

> To traders, whether day traders or high frequency or somewhere in between, Wall Street has nothing to do with creating capital for businesses, its original goal. Wall Street is a platform. It’s a platform to be exploited by every technological and intellectual means possible. Just because the day to day work of traders on Wall Street has been abstracted away from it's original intention doesn't mean that it doesn't continue to serve that function. When working in any large system, your focus can be absorbed by whatever smaller task you are working on, and you can loose sight of what your piece of the puzzle does. When working on a software team of many hundreds of developers, it's easily possible that the code you are working on is not at all specific to the problem you're solving. That doesn't mean that your work isn't helping to solve the problem. The financial system is very complex, and I won't pretend to have the expertise or knowledge to explicitly explain the service that high frequency traders, for example, are providing. The way Wall Street currently operates might not be the most efficient system for allocating capital. But I don't think that you can immediately write off modern trading on the basis that it doesn't directly deal with the original purpose of Wall Street.

kevinpet 15y ago

The exchanges operate for the benefit of the listed companies. NASDAQ and NYSE can compete on features and trading rules. Leaving aside the problem of company officers trying to screw the stockholders (I'm not a fan of stock classes that give different voting rights), companies will list wherever the rules give the highest value to their current shareholders. And the highest value to the shareholders is provided by the market with the parasitic HFTs. I don't understand. I though Mark Cuban was a fairly sophisticated investor, but he seems to be marveling that Australia taxes short term capital as ordinary income and LTCG at a lower rate, which is of course exactly what the US does.

astrec 15y ago
What you describe applies to investors. He's "marvelling" over the parallel tax system for traders where capital income is treated as revenue.

ulf 15y ago

Wall street just followed a general theme among banks. Once upon a time they were institutions built to control capital flow, from where it was available to where it was needed, to provide some social value by allowing enterprises to thrive. But apparently the credit interest was not a big enough margin, so they decided to do all kinds of other shit, investment banking was born. Which mostly makes rich people richer, without any kind of social benefit. Wall Street just followed that model.

yason 15y ago

It is getting increasingly difficult to just invest in companies you believe in. Uh, I think it goes: Buy stocks when it's cheap in comparison to your valuation metric and hold. Collect dividends, or if the stock becomes too overvalued, sell for profit. Start from beginning. What did I miss?

javanix 15y ago
You missed the part where creating that valuation metric is becoming harder and harder due to an increasingly chaotic and fast-moving market.
- dkarl 15y ago
  If you're just trying to predict how a stock's price will change in the next couple of weeks or months under whatever market conditions happen to prevail over that time period, that's speculation. That's what the vast majority of individual investors engage in -- "I think the price of this stock will go up, so I'm going to buy it." Arguing that speculation is hard in a chaotic market gets no sympathy. Actual value investing means you think you have an idea of what shares in a particular company are worth, plus faith that the market price of a stock will reflect that underlying value over the long term. Arguing that value investing is affected requires arguing that market chaos has the power to prevent market prices from reflecting underlying value over the long haul. That's a pretty big claim and requires some justification.
  - three14 15y ago
    Doesn't gold behave that way? Market forces prevent gold from reflecting the value of using gold for jewelry or industry or whatever else other than playing the market. It seems like an unexceptional claim that there are other financial instruments that are similar.
    - dkarl 15y ago
      Gold isn't a good example of any market principle because of its historical and symbolic significance. There's a reason the term "gold bug" exists but not "wheat bug", and there's a reason it was a perfect match for Glenn Beck's theatrics. Who hasn't had a conversation in a bar about the price of gold? Who has had a conversation in a bar about the price of sugar or aluminum? Gold is a magnet for all kinds of emotion, from paranoia to get-rich-quick mania.

known 15y ago

Govt will not impose new taxes. HNIs and Corporations are bullying Govt that they'll permanently move their businesses to low cost countries.