So the problem with traditional buy and hold investing based on fundamentals is that it's very slow. I don't mean slow in terms of latency and distance to servers, I mean that financial returns accumulate slowly. Investing in the market as a whole will return roughly 10%-15% depending on the year. This beats what most individual day traders and money managers can do, but is nothing close to what a well positioned HFT trading firm can make.
"Sophisticated" trading strategies exist because the finance industry has focused itself on one goal to the exclusion of all others: Make as much money as possible. It doesn't matter if it's a zero sum game or if the most fit companies are being selected based on research in a darwinian process. A rational actor is going to chose 30% over 10% every time.
The bottom line is that predicting the success of a given company is hard. Predicting what the other actors in the market are going to do is also difficult, but is much easier by comparison. Asa participant in the market you want to be in Keynes' newspaper contest, not in the business of making broad predictions about the future. As a member of society we'd prefer that capital be allocated to the firms that will use it to our most benefit. I don't think anyone wants to use the law to change the current system so that it is more useful to society. A lot of people are also unhappy with a lot of finance being in its own bubble of "irrelevance". This is a decision that we're all going to have to make about how we want the financial markets to work. Things seem to be working out ok now, in a general sense, so change might be a long time coming.
>This beats what most individual day traders and money managers can do, but is nothing close to what a well positioned HFT trading firm can make.
I don't know if this is actually true if you average up all the successes and failures. Probably more like, for every successful [daytrader|money manager|HFT firm] there are 9 that lose money or go bankrupt and nobody ever hears about again or includes in average return calculations.
It's just that the rewards to the few successes are so tantalizing, there's never any shortage of folks jumping into the game trying their hand at it.
>The bottom line is that predicting the success of a given company is hard. Predicting what the other actors in the market are going to do is also difficult, but is much easier by comparison.
Not sure I'd agree. With companies you can at least throw some old school research and hard work at the problem. Difficult but at least nobody is out to eat your lunch there. Its just difficult as opposed to cut-throat.
>rational actor
Can you really count on that if 60% of the market is AI and a sizable chunk of the rest is trading on "superior"/inside info?
"Sophisticated" trading strategies exist because the finance industry has focused itself on one goal to the exclusion of all others: Make as much money as possible. It doesn't matter if it's a zero sum game or if the most fit companies are being selected based on research in a darwinian process. A rational actor is going to chose 30% over 10% every time.
The bottom line is that predicting the success of a given company is hard. Predicting what the other actors in the market are going to do is also difficult, but is much easier by comparison. Asa participant in the market you want to be in Keynes' newspaper contest, not in the business of making broad predictions about the future. As a member of society we'd prefer that capital be allocated to the firms that will use it to our most benefit. I don't think anyone wants to use the law to change the current system so that it is more useful to society. A lot of people are also unhappy with a lot of finance being in its own bubble of "irrelevance". This is a decision that we're all going to have to make about how we want the financial markets to work. Things seem to be working out ok now, in a general sense, so change might be a long time coming.