4 ms·

"The market has changed in a way that an overwhelming number of external factors can have a negative (or positive) impact on that company's share price" Really

by harryh 14y ago

"The market has changed in a way that an overwhelming number of external factors can have a negative (or positive) impact on that company's share price" Really? In what way has it changed? External factors have always had a huge impact on businesses. I'm sure there were lots of super well run businesses that went under durring the Great Depression (which was, you know, the mother of "external factors").

whatshisface 14y ago
By external factors, I think he means factors unrelated (or at least not very related) to the success of the company, like wild stock speculation.
- debacle 14y ago
  As someone who invests in small caps almost exclusively, I can tell you that 99.99% of the companies in existence today don't suffer from wild stock speculation.
uptown 14y ago
"In what way has it changed?" Two examples: 1. High-frequency algorithmic trading. http://blogs.reuters.com/felix-salmon/2012/08/06/chart-of-the-day-hft-edition/ http://blogs.reuters.com/felix-salmon/2012/08/06/chart-of-th... 3. Repeal of the Glass–Steagall Act, giving government-protected 'too-big-to-fail' commercial banks the ability to incur risks traditionally reserved for investment banks.
- harryh 14y ago
  And how do those changes (especially #2) "have a negative (or positive) impact on that company's share price" ?
  - drumdance 14y ago
    In the extreme, repeal of Glass-Steagall and resulting shenanigans put the entire market at risk, which in turn put the macro economy at risk, which in turn changed the long term outlook of stocks. That said, I do question the overall premise that HFT affects stock values over the long term.
    - harryh 14y ago
      That's fair. But I think that's getting pretty far from what Cuban was complaining about. I also don't think that "government decisions can have a big impact on the economy" is a new phenomenon.
  - uptown 14y ago
    In order to make money on a trade, the share price needs to move. So you've got algorithms whose attributes manage things like how much of an actual order is exposed to the market at one time, or how much they adjust your bid or ask as the order progresses. I've got some algo documentation whose algo "Watch Out For" notes warn "may be too aggressive and cause impact" and "must watch out for order size that adversely impacts market". But maybe you're a trader that decides you want to be "too aggressive" with your trade and now you've moved the market because you've used an algorithm in a way it wasn't intended to be used, and your employer's risk controls didn't care or didn't catch what you were doing until it's too late. Net effect is that your trade may sway the overall market in a way that moved that company, or that company's sector, or maybe the whole market depending on what impact your trade had. And all of that assumes the algorithms behave in a way that they're expected to. I like this example from Amazon's pricing algorithms: http://www.pcmag.com/article2/0,2817,2384102,00.asp http://www.pcmag.com/article2/0,2817,2384102,00.asp but you could apply the same concerns to pricing matters of the stock market where the unintended consequences of poorly-conceived strategies have a destabilizing effect on pricing. HFT allows all of this happen so much faster than could have ever been done manually. And when high frequency trading is being done by entities with enormous balance sheets, and an increased tolerance for risk due to assurances by the government that they'll be bailed out should they make a bad bet, it's got the potential to destabilize the entire market.
    - harryh 14y ago
      > it's got the potential to destabilize the entire market. No, it really doesn't. There's not a boogey man hiding under your bed just waiting to get you. You know what would happen if a bunch of computer algorithms went crazy and mispriced a bunch of stocks? The guys running that code would get taken for a bath(1). If a bunch of computers went crazy today and started selling shares of GOOG for $20 then the humans would start buying like crazy and the share price would correct. 1. http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock_trading_disruption http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock...
      - uptown 14y ago
        "On the same day the company's stock plunged 33 percent, to $3.39; by the next day 75 percent of Knight's equity value had been erased." So in the example you linked, a computer algorithms went crazy, and anybody invested in Knight Capital got hosed ... as did anybody elsewhere in the market that reacted to that instability. Not exactly a convincing argument that it can't or won't happen again potentially on a much larger scale. You basically confirmed my point.

by harryh 14y ago

whatshisface 14y ago

By external factors, I think he means factors unrelated (or at least not very related) to the success of the company, like wild stock speculation.

debacle 14y ago
As someone who invests in small caps almost exclusively, I can tell you that 99.99% of the companies in existence today don't suffer from wild stock speculation.

uptown 14y ago

"In what way has it changed?" Two examples: 1. High-frequency algorithmic trading. http://blogs.reuters.com/felix-salmon/2012/08/06/chart-of-the-day-hft-edition/ http://blogs.reuters.com/felix-salmon/2012/08/06/chart-of-th... 3. Repeal of the Glass–Steagall Act, giving government-protected 'too-big-to-fail' commercial banks the ability to incur risks traditionally reserved for investment banks.

harryh 14y ago
And how do those changes (especially #2) "have a negative (or positive) impact on that company's share price" ?
- drumdance 14y ago
  In the extreme, repeal of Glass-Steagall and resulting shenanigans put the entire market at risk, which in turn put the macro economy at risk, which in turn changed the long term outlook of stocks. That said, I do question the overall premise that HFT affects stock values over the long term.
  - harryh 14y ago
    That's fair. But I think that's getting pretty far from what Cuban was complaining about. I also don't think that "government decisions can have a big impact on the economy" is a new phenomenon.
- uptown 14y ago
  In order to make money on a trade, the share price needs to move. So you've got algorithms whose attributes manage things like how much of an actual order is exposed to the market at one time, or how much they adjust your bid or ask as the order progresses. I've got some algo documentation whose algo "Watch Out For" notes warn "may be too aggressive and cause impact" and "must watch out for order size that adversely impacts market". But maybe you're a trader that decides you want to be "too aggressive" with your trade and now you've moved the market because you've used an algorithm in a way it wasn't intended to be used, and your employer's risk controls didn't care or didn't catch what you were doing until it's too late. Net effect is that your trade may sway the overall market in a way that moved that company, or that company's sector, or maybe the whole market depending on what impact your trade had. And all of that assumes the algorithms behave in a way that they're expected to. I like this example from Amazon's pricing algorithms: http://www.pcmag.com/article2/0,2817,2384102,00.asp http://www.pcmag.com/article2/0,2817,2384102,00.asp but you could apply the same concerns to pricing matters of the stock market where the unintended consequences of poorly-conceived strategies have a destabilizing effect on pricing. HFT allows all of this happen so much faster than could have ever been done manually. And when high frequency trading is being done by entities with enormous balance sheets, and an increased tolerance for risk due to assurances by the government that they'll be bailed out should they make a bad bet, it's got the potential to destabilize the entire market.
  - harryh 14y ago
    > it's got the potential to destabilize the entire market. No, it really doesn't. There's not a boogey man hiding under your bed just waiting to get you. You know what would happen if a bunch of computer algorithms went crazy and mispriced a bunch of stocks? The guys running that code would get taken for a bath(1). If a bunch of computers went crazy today and started selling shares of GOOG for $20 then the humans would start buying like crazy and the share price would correct. 1. http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock_trading_disruption http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock...
    - uptown 14y ago
      "On the same day the company's stock plunged 33 percent, to $3.39; by the next day 75 percent of Knight's equity value had been erased." So in the example you linked, a computer algorithms went crazy, and anybody invested in Knight Capital got hosed ... as did anybody elsewhere in the market that reacted to that instability. Not exactly a convincing argument that it can't or won't happen again potentially on a much larger scale. You basically confirmed my point.