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The New Stock Market: Sense and Nonsense
- acconrad 11y agoThis paper explains the exploitations of High Frequency Trading and it's effects on the stock markets of today. The authors are from Columbia Law School and Columbia Business School - The B-school being one of the top business schools for investing specialists (particularly value investing). If you've read Security Analysis or Intelligent Investor by Benjamin Graham (also from Columbia), this shouldn't concern you. Even the conclusion from the paper is that "there is no emergency requiring immediate, poorly-considered action." The day-to-day micro trades of a HFT firm bear little consequence to the long-term performance of a security. What should concern you is Mr. Market[1]. Mispricing of securities (i.e. from a poor earnings report, sell from an instituitional index fund because it dropped from a large cap to a mid cap, etc.) and the inefficiencies of irrational trades create opportunities for investors, even for the individual investor. In a bull market like our current one that is going over 6 years strong, it's hard to find that value (and even then, if you don't have time to learn investing, you're still best off holding a broad, low-cost, tax-efficient index funds in stocks and bonds), but it still exists. And it's not being exploited by HFT or Institutional pollution. You just have to know where to find it. [1] http://www.investopedia.com/terms/m/mr-market.asp http://www.investopedia.com/terms/m/mr-market.asp
- Rainymood 11y agoGood post. I am currently writing my seminar paper on NLP (Latent Dirichlet Allocation) in regards to quarterly earnings reports and stock price :) good stuff. Just remember this: "The market can stay irrational longer than you can stay solvent."