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The Almighty Buck Technology News

Quant AI Picks Stocks Better Than Humans 446

Posted by Soulskill
from the skynet-needs-some-green dept.
Mr_Blank writes with this excerpt from an article at MIT's Technology Review: "The ability to predict the stock market is, as any Wall Street quantitative trader (or quant) will tell you, a license to print money. So it should be of no small interest to anyone who likes money that a new system that works in a radically different way than previous automated trading schemes appears to be able to beat Wall Street's best quantitative mutual funds at their own game. It's called the Arizona Financial Text system, or AZFinText, and it works by ingesting large quantities of financial news stories (in initial tests, from Yahoo Finance) along with minute-by-minute stock price data, and then using the former to figure out how to predict the latter. Then it buys, or shorts, every stock it believes will move more than 1% of its current price in the next 20 minutes — and it never holds a stock for longer."
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Quant AI Picks Stocks Better Than Humans

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  • Bullshit (Score:3, Insightful)

    by Anonymous Coward on Saturday June 12, 2010 @10:29AM (#32549388)
    It's been said before, and I'll say it again. You should ban anyone buying a stock and then selling it within timeframe x (where is 1 week/6 months/1 year). Anything to cut down on the insane bullshit.
  • by wiredlogic (135348) on Saturday June 12, 2010 @10:29AM (#32549392)

    and it never holds a stock for longer

    So this is really an automated gambling system rather than a tool for investment.

  • Re:Bullshit (Score:3, Insightful)

    by keraneuology (760918) on Saturday June 12, 2010 @10:32AM (#32549418) Journal
    Why? How? By what authority? The free market is better than anything else - unless you like a system where they say "ok... we'll protect the little guys by setting up a tier system. If your portfolio $5,000,000,000 then you have to wait six seconds. Everybody in the middle, 1 month."
  • Re:Bullshit (Score:4, Insightful)

    by Anonymous Coward on Saturday June 12, 2010 @10:43AM (#32549486)

    Why? How? By what authority? The free market is better than anything else - unless you like a system where they say "ok... we'll protect the little guys by setting up a tier system. If your portfolio $5,000,000,000 then you have to wait six seconds. Everybody in the middle, 1 month."

    By what authority? In the USA stocks are regulated by the Securities and Exchange Commission, part of the federal executive branch. Other nations have similar regulatory/enforcement agencies. Please tell me that you aren't really this ignorant about a subject you've decided to comment on?

    As others have pointed out, stocks and bonds and other securities are meant to be investments, not gambling. Treating them as one big casino is the behavior that tends to destabilize an economy, especially by favoring short-term gain at all costs - even at the cost of severe long-term loss. Witness the housing bubble. It was precipitated by speculators who bought property they had no intention of living in because they hoped to resell them at higher prices. Housing prices cannot keep going up forever, especially not when at the same time banks cause foreclosures by deciding that credit worthiness is no longer important when determining eligibility for loans. None of this would have been such a big deal if all of the people buying the homes intended to live there indefinitely.

    What do you think happens when you treat American corporations the same way, as one big casino, and come up with new and better tools to help you do your gambling? There are network effects and not many people seem to want to consider them.

  • by Anonymous Coward on Saturday June 12, 2010 @10:43AM (#32549488)

    This type of trading provides liquidity and makes a market.

  • Re:The point... (Score:3, Insightful)

    by MoonBuggy (611105) on Saturday June 12, 2010 @10:50AM (#32549538) Journal

    It doesn't. I don't see anybody claiming it does. It makes money for those who created the system. Might not be the most noble goal, but it's sure as hell a sensible one to go for.

  • by Anonymous Coward on Saturday June 12, 2010 @10:54AM (#32549560)

    Tax gains depending on the time stock was held. Held less than 1 day: 99% tax rate. Held more than 1 year: income tax rate. Interpolate. Extremely short term "predictions" on the stock market have no value to society and should not be rewarded.

  • Re:Bullshit (Score:5, Insightful)

    by hedwards (940851) on Saturday June 12, 2010 @11:02AM (#32549610)
    Bullshit. The free market is what led us to the brink of economic collapse. Short term trading is probably the largest factor in the rather routine occurrence of market failures. Because the average period for holding a stock is around 6 months, there's no incentive for corporations to look any further into the future. Even when the risk is terribly obvious they don't do anything to avert it. There's been a steady drumbeat in recent decades for fewer dividends and more growth. The problem is that dividends are paid to investors as a way of keeping them around, and as it turns out it's a lot harder to have steady growth and a regular dividend than it is to grow for periods.

    And actually you've got it backwards, if you've got a massive portfolio then you should be required to wait longer than smaller investors. Small investors cause far fewer problems in this respect that institutional ones do. They can do crazy things like sell a portion of their holdings triggering a panic, then buy them back knowing what the price will be in a few moments time. The suggestion you're making that they don't harm everybody else is ultimately bullshit.
  • by Anonymous Coward on Saturday June 12, 2010 @11:06AM (#32549662)

    And all at the minor expense of of the occasional slight global economic meltdown. Such a great deal, isn't it?

  • by Trepidity (597) <delirium-slashdot@h a c k i sh.org> on Saturday June 12, 2010 @11:07AM (#32549668)

    The problem is that if it's too high volume, it both makes and is the market. If everyone's running a statistical model that says that Event X will cause a stock price increase, the stock price will increase, even if it wouldn't have otherwise.

  • by FatSean (18753) on Saturday June 12, 2010 @11:09AM (#32549686) Homepage Journal

    We do not need to remove them. Regulations keep the playing field more even. Without them we'd see most of the wealth of this country flow up to a select few.

  • by hedwards (940851) on Saturday June 12, 2010 @11:13AM (#32549718)
    I assume you've never heard of "dividends." They're what used to drive investments prior to computers. Back in the day people would rarely buy and sell on a time period of less than a couple years, because it was somewhat difficult to get in and out efficiently. Hell, I remember even in the 80s, you'd typically be restricted to only checking prices once a day. Well, unless you were a broker or were glued to the TV.

    What that does is decrease the cut that the matchmakers get for brokering the deal. However it doesn't harm the market, there are still stocks, most notably Berkshire Hathaway, which are barely liquid and they do just fine. You just Don't expect to trade it immediately. I know it's terrible to possibly have to wait an hour or two, but it's worth it if it cuts these jack ass jackal cheats out of the picture.
  • by Kumiorava (95318) on Saturday June 12, 2010 @11:13AM (#32549720)

    And this extra liquidity is a benefit? I could argue that even without these automated bots there is no shortage of liquidity in modern markets.

    One of the greatest benefits of liquidity is supposed to be more stable price formation. Unfortunately I cannot believe in the current system where on a bad day swings can be over 50% down and back up, and on a good day stocks bounce around in 5-10% bracket. No company value can move that much during one day, it's all speculation and volatility of these systems.

    Stock market needs to go back to the basics where you own a company rather than zero sum lottery tickets.

  • by rundgong (1575963) on Saturday June 12, 2010 @11:15AM (#32549740)
    But is not all investment gambling?
    The fact that you hope to make a profit in 20 minutes instead of 20 months doesn't really change the gambling aspect.

    And how long will it be until all trade bots wants to buy the same stock and then sell it 20 minutes later? It will cause the same problems we've seen before with automated trading running haywire.
  • Re:Bullshit (Score:4, Insightful)

    by Sir_Lewk (967686) <sirlewk@NOSpaM.gmail.com> on Saturday June 12, 2010 @11:34AM (#32549894)

    especially when taxpayers worldwide are free to pay billions to revive banks

    What in the world makes you think insanity like that qualifies as "free market"?

  • Re:Bullshit (Score:4, Insightful)

    by roman_mir (125474) on Saturday June 12, 2010 @11:43AM (#32549938) Homepage Journal

    Bullshit. The free market is what led us to the brink of economic collapse.

    - out of the mouth of a guy who looks like does not even understand what money actually is.

    You haven't had free market in banking or money supply economics or government spending economics or borrowing economics and the entire debt based economy for decades, starting mostly since the creation of the Fed. What Free Market are you speaking of? The 'Free Market' where the money is printed with no regard to the actual production behind it? The 'Free Market' where Government nurtures Monopolies into existence just to make sure politicians have a never ending money flow for their campaigns? 'Free Market' where Government regulates competition out of existence on the whims of the Monopolies it creates? 'Free Market' that does not allow failures actually to die off and does not allow small competition to step in and replace the failing businesses? 'Free Market' where Government is in business of insurance of every kind, including every possible loan? 'Free Market' where Government pushes incentives to live on debt? 'Free Market' with a fundamental believe that consuming is the main engine of Economy?

    Where is this magical 'Free Market' that caused the economic collapse?

    This Free Market is nowhere to be found.

    The banks that are in business of High Frequency Trading are Monopolies created and abetted by the Government that keeps them being monopolies by providing free money, by creating regulations that kill off competition.

    The FDIC - Government's corporation that insures your funds in a private bank - that's the reason for the banks not to care about actually doing right by their customers and getting into risky behaviors like gambling with High Frequency Trading tools.

    A person spends less time thinking about the bank they will put money into than about what kind of a vacuum cleaner they'll be buying.

    If the government did not provide free money and insurance to banks, if it did not create impossible to get through regulations that only prevent small competition from entering the business of hedging funds or banking but never stops the giant monopolies who already have the money and man power to overcome any and all regulations to continue their business, then banks would actually have to earn the trust of customers.

    Banks would have to insure themselves with private insurance companies, who would require a sane amount of capital to be held at a bank and would not allow a bank to over-leverage itself into bankruptcy in case some investments go bad.

    Government is the engine of the economic collapse that is happening. Government prints and borrows money, sets insane interest rates, chooses the friends to become giant monopolies, creates regulations that kill off small competition, kills small business by taking away money from people through income tax system that prevents savings and small business from appearing. Giant monopolies have all of the moral hazard of the Government insurance and Free Money.

    The monopolies that are manufacturers, also created with government involvement only need an opportunity to shift their giant economies of scale to zones with least production costs. USSR fell apart, the world opened up and the opportunity presented itself - China. The Government, instead of competing with China by reducing regulations, by reducing or completely removing income taxes that prevent small investors from saving and creating small businesses, just started borrowing and printing more. Government does not create anything except inflation and competition killing regulations.

    Just like with the preventable incident with the BP/Transocean/Halliburton/MMS oil spill, you can see the government's actions. There are none. They cannot do anything in a crisis.

    Same thing with economy - they can't do anything but print and borrow more money and create more regulations. They can make fake census jobs, but those are not productive jobs, they don't reduce the trade deficit.

    Government is on its way destroying the economy, and the useful idiots like you still believe what they have been fed their entire life: this is the Free Market.

  • Sliding tax rate? (Score:4, Insightful)

    by wfstanle (1188751) on Saturday June 12, 2010 @11:43AM (#32549942)

    There is an alternatively and it just might address the capital gains issue. We tax capital gains at the same rate no matter how long you keep the investment. Why not have a sliding scale that bases the capital gains tax rate on how long you hold on to the stock. Suggested tax rates. At the same time, investors are always crying that capital rates are too high. With this scheme, they would be in control of what rate their investments would be taxed at.

    1 second ... 99%
    1 minute ... 95%
    1 hour ... 90%
    1 day ... 75%
    1 week ... 50%
    1 month ... 35%
    1 year ... 20%
    5+ years ... 10%

    You could even put the tax rates on a continuous scale that negates any advantage to holding on to an investment just long enough to meet a benchmark. Yes, short term investments would be taxed at a confiscatory rate, but that is the general idea. We want to slow down the rate of trading. At the same time, investors are always crying that the capital gains rate is too high. This would put them in control of what tax rate their investments is taxed at. All they need to do is to hold on to investments long enough. This scheme would also favor the little guy who probably holds on to investments for a longer time.

  • Re:Bullshit (Score:4, Insightful)

    by timeOday (582209) on Saturday June 12, 2010 @11:49AM (#32550012)

    Isn't the rationale something along the lines that this kind of high volume, quick selling flattens out the (inherent) irrationality of the market?

    I really think the premise of this is simply to beat everybody to the punch by a few seconds. It is expected that good and bad news moves the market; by moving first, you get money. They're not trying to make better decisions, just a little faster. It's not an inherently productive activity, and it's a pity so many of our brightest minds are wasting their lives gaming the system (taking big slices of pie without helping make more). But I wouldn't pretend to have the solution.

  • Re:Bullshit (Score:5, Insightful)

    by AndersOSU (873247) on Saturday June 12, 2010 @11:55AM (#32550064)

    Here's the difference.

    The economy as a whole isn't a zero sum game. I invest some money in a company, it makes something of value and increases the overall size of the economy and (rightly) pays dividends.

    20 minute speculative bets are zero sum. In 20 minutes nothing of value was created. When I buy something for a $1 and then sell it for $1.01 twenty minutes latter I'm not growing the economy, I'm taking $0.01 from someone else.

    This shit is perverse. Not only does it destabilize the economy, it's literally skimming money off the top of the real economy to line the pockets of a few wealthy investors and traders who, speaking from an economic perspective are dead weight. (and then they complain about welfare...)

  • by Anonymous Coward on Saturday June 12, 2010 @11:57AM (#32550084)

    If this program worked at all, I'm curious why Schumaker and Chen did not keep this to themselves and just retire to the level of Sergy and Brin. With a small wad of cash to get the ball rolling, it would just snow ball into ever-increasing cash reserves.

    They could start a lot of business ventures from the 1/2 acre deck of the 800' mega yacht anchored in the Med, all while their secret stock market money machine worked its wonders.

  • by Anonymous Coward on Saturday June 12, 2010 @12:03PM (#32550126)

    Ah, right. Web Bot makes a (more or less) triumphant return, does it?

    Well, a couple of cherry-picked results (you know, such as "data from five non-consecutive weeks in 2005") could net a snakeoil salesman a couple of million, so I guess it does what it was written for.

    I've seen similar things about people choosing stock at random and performing better than your average stock fonds. Some of them, anyway, pretty much what you'd expect by chance - the pros don't have a magic wand to show them what stocks will rise, they gamble just as much as ordinary folk who stumble into the stock market. The difference is that they're not gambling with their own money, and they get paid handsomely for it. After all, "professional" only means that you're getting paid for it, not that you're any good at what you do.

    As such, color me unimpressed if someone finds a hand-picked dataset for a bayes filter that does better than a professional trader.

  • Re:Bullshit (Score:4, Insightful)

    by Jake73 (306340) on Saturday June 12, 2010 @12:05PM (#32550150) Homepage

    Because the market *should* be protected? Why you ask? Because the government has pushed people into investing in the market by way of tax-deductible retirement funds such as 401k and IRAs.

    Personally, I think the tax-deductible retirement accounts are a scam to get people investing more money in the stock market. My preference would be to get rid of this ridiculous concept, but that's not going to happen. So, since the government has coerced the general public into investing in a market they have no clue about, the government should do what it can to protect that market somehow.

    What we have now is essentially a government which encourages (by way of a 30% discount) people to hand their money over to blackjack players to gamble with their money.

    Quants are fine as long as people are investing with that money. The problem is, the general public can't compete -- they're just along for the ride.

  • Re:Bullshit (Score:5, Insightful)

    by Jeremi (14640) on Saturday June 12, 2010 @12:18PM (#32550238) Homepage

    You should read up on the free market. What we have is not a free market. All the regulations you support are there to attempt to fix problems caused by yet other regulations.

    This argument is just silly. A regulation-free market is just another name for anarchy. You wish you had more money than that other trader? No problem, shoot him and take his money, or kidnap his kids and slit their throats unless he agrees to buy them back from you. Don't want something similar to happen to you? No problem, hire a private army of mercenaries to protect yourself. One of your mercenaries is getting a bit ambitious, and sneaking into your room to murder you in the night? Tough, you should have hired a more reliable mercenary.

    Regulations are there so that people can conduct their business with at least some confidence that they won't be completely screwed over by every other actor in the market at the first opportunity. Without that confidence, people simply wouldn't trade -- they'd keep all of their money in a locked box in their basement, and spend it mainly on armed guards, and there would be no market, "free" or otherwise.

    Yes, some regulations are no doubt unnecessary. But to say that all regulations are only "there to attempt to fix the problems caused by yet other regulations" is to throw out the baby with the bathwater.

  • by Shadow of Eternity (795165) on Saturday June 12, 2010 @12:19PM (#32550248)

    Standard Oil, Triangle Shirtwaist Fire, Pullman Strike, and the Pinkerton Militia. Now shut the fuck up and crawl back into your cave of voluntary ignorance while the people that didn't get a D in US History talk about how not to avoid our past mistakes rather than desperately try to repeat them as though 100 hour child-labour using workweeks where you were locked inside a building with no windows or fire suppression systems are something to idealise.

    Go jerk off to some pictures of Ayn Rand or something.

  • by Jeremi (14640) on Saturday June 12, 2010 @12:22PM (#32550282) Homepage

    No, the wealth would spread around to anyone who was willing to take a risk and was successful.

    And who is it who has the excess resources necessary to take a risk? Oh yeah, the rich. If they risk a lot of money, and lose it, they can fall back on their reserves and try again next year. The rest of us can't afford to risk very much, since failure would cost us our livelihood. That's why the rich tend to get richer, and the poor tend to stay poor.

  • by timeOday (582209) on Saturday June 12, 2010 @12:23PM (#32550294)

    But is not all investment gambling? The fact that you hope to make a profit in 20 minutes instead of 20 months doesn't really change the gambling aspect.

    I'm not sure where the true boundary between investing and gambling falls, but in any case 20 minute vs 20 month outlooks seem to be two different types of investing that don't really interfere anyways. Whether it takes 30 seconds or 3 minutes for the quarterly report to impact the stock price doesn't change what it's going to be two years from now. The people harmed by this new system are not those making long-term forecasts (or just relying on overall growth over time), but rather the day traders already doing the same thing, but on a timescale of minutes instead of seconds.

    I am more of a buy-and-hold guy, not because I think it is inherently more moral, but because I don't manage enough money to justify spending all my time managing it. By trying to time stock purchases, I would just open myself up to being fleeced by specialists who do nothing else. Thus, I think it is better for me to avoid all the transaction costs, essentially letting the specialists set the prices and duke it out for fractions of cent that only matter at huge volumes, and place my bets on the growth of the overall economy over time. Over this history of the Wall Street, this has been an effective strategy. I suppose it's possible the economy is done growing forever and the indices will be flat for the next 30 years until I retire (like they were for the last 10 or so since I started investing). But I doubt it.

  • Re:Bullshit (Score:5, Insightful)

    by Bigjeff5 (1143585) on Saturday June 12, 2010 @12:26PM (#32550316)

    I call bullshit.

    What we have now is exactly what we were told dishing out the billions of dollars would fix.

    Well, it hasn't fixed it. In fact, the vast majority of new jobs are government jobs, which actually subtract from the economy, not add to it. It isn't hard to argue that the problem is now worse than it would have been had we simply let things collapse. It's nearly impossible to prove, since we didn't do it that way, but it's clear the bail-outs didn't work as promised. Though the talking heads will keep saying it did - you know the old saying: repeat a lie often enough, and pretty soon everyone will believe it.

    There are a lot of people who believe that had we let the fools fail, other companies would have taken up the slack (this actually happened in the areas the Fed didn't deem important enough to save). For about the same cost in jobs we would have seen a rebound and a much more stable, if poorer in the short term, economy.

    Instead we've propped up the failing system. We're rewarding companies for making shady deals and bad decisions. Yeah, that's definitely going to promote a healthy economy.

  • wow (Score:3, Insightful)

    by Khashishi (775369) on Saturday June 12, 2010 @12:36PM (#32550388) Journal

    and this development helps humanity, how?

    The only possible benefit I see is to help to bring the end to this fiasco that is Wall Street.

  • Re:Bullshit (Score:3, Insightful)

    by b4upoo (166390) on Saturday June 12, 2010 @12:44PM (#32550474)

    I loath the idea of a free market. However if in the example of a large, institutional investor selling, triggering a panic and then buying back when the stock is at a lower point, you must admit that the little guy then has the opportunity to buy at the low point as well.
                      What I am getting at is that the activities in the market may not be so unfair to the small investor but the entire idea of a stock market is evil to the class of people who can afford no investments at all or as a moral principal refuse to own stocks. They suffer from market activities and reap no rewards under any circumstance.

  • Re:Bullshit (Score:3, Insightful)

    by A Commentor (459578) on Saturday June 12, 2010 @12:50PM (#32550528) Homepage

    Alcoa Inc. in May 2008 at 36$, which seems to have dropped down permanently to around 12$. Do you really think that yearly dividends of some say 5%/year would make up for the risk you take that your equity drops 300% overnight and stays there? You'd have to wait a lot of years until you'd have recouped that loss.

    300%!!!... nope.. $36 down to $12 is a 66% drop. a 300% drop would imply that you would OWE $72 for each share....

  • Re:Bullshit (Score:2, Insightful)

    by causality (777677) on Saturday June 12, 2010 @12:53PM (#32550562)

    You should read up on the free market. What we have is not a free market. All the regulations you support are there to attempt to fix problems caused by yet other regulations.

    This argument is just silly. A regulation-free market is just another name for anarchy. You wish you had more money than that other trader? No problem, shoot him and take his money, or kidnap his kids and slit their throats unless he agrees to buy them back from you. Don't want something similar to happen to you? No problem, hire a private army of mercenaries to protect yourself. One of your mercenaries is getting a bit ambitious, and sneaking into your room to murder you in the night? Tough, you should have hired a more reliable mercenary.

    Regulations are there so that people can conduct their business with at least some confidence that they won't be completely screwed over by every other actor in the market at the first opportunity. Without that confidence, people simply wouldn't trade -- they'd keep all of their money in a locked box in their basement, and spend it mainly on armed guards, and there would be no market, "free" or otherwise.

    Yes, some regulations are no doubt unnecessary. But to say that all regulations are only "there to attempt to fix the problems caused by yet other regulations" is to throw out the baby with the bathwater.

    This is just another rehashed discussion of many rehashed discussions from some dusty old playbook.

    It's like what happens anytime Windows security (or lack thereof) is mentioned. Inevitably someone somewhere will say "but Windows gets attacked because it has such a large marketshare," knowing that truly arguing against that would amount to proving a negative.

    Windows and its marketshare, regulations vs. laissez-faire capitalism, we've had all of these discussions a thousand times before. They never reach a final conclusion to be resolved once and for all because they are like religious issues. I wish people would pick the denomination that pleases them, worship at its altar if they like, and then realize how pointless it is to endlessly debate non-resolvable religious issues. They tend to derail what would otherwise be a good discussion.

    Maybe we can save the repetitive memes for the people who think the next iteration of "in Soviet Russia" is actually funny?

  • by Bigjeff5 (1143585) on Saturday June 12, 2010 @01:07PM (#32550696)

    Yup.

    But I'd be interested to see how well it works.

    Historically bots work for a few weeks or months at best, then the market changes and they have to be scrapped (there is generally little that is worth salvaging). If this works better then it will be a gold mine for those who have it, though I have a sneaking suspicion meat-bag strategies will adjust to compensate for it.

  • by dogmatixpsych (786818) on Saturday June 12, 2010 @01:09PM (#32550716) Homepage Journal
    Investing is not necessarily gambling. Gambling is based on odds and randomness. Investing is usually based on performance of companies, which is not random. Yes there is speculation in investing but at its foundation most (traditional) investing is based on how well companies do. Gambling is based on chance.
  • by mrlibertarian (1150979) on Saturday June 12, 2010 @01:11PM (#32550742)
    Slashdot even covered United Airlines stock dropping from $12 to $3...

    You call this "dangerous"? I would love it if one of my stocks dropped 75%, because I would be able to buy more shares at a great price!

    There seems to be a lot of people here whining about what would happen if 95% of the market participants were day traders and only 5% were long term investors. Guess what? Those long term investors would love it, because the day traders would create endless opportunities for the long term investors to buy low and sell high.
  • by Subliminalbits (998434) on Saturday June 12, 2010 @01:20PM (#32550812)
    What I really meant to get across was that because of the volumes that these systems need to trade in to make money, they have the capacity to make very large impacts on the market if they misbehave. Because of this, we should at the very least be aware of them and the dangers that they pose when they misbehave.
  • by Surt (22457) on Saturday June 12, 2010 @01:32PM (#32550912) Homepage Journal

    Nah, look at the successful people in history, and see that almost all of them got helped off to a great start in life by wealthy parents. Then notice that the news stories are all about the tiny few who made it in spite of the lack of advantages, precisely because it is surprising and rare.

  • by NeutronCowboy (896098) on Saturday June 12, 2010 @01:50PM (#32551064)

    And how did their parents get rich?

    A large quotient of luck. Bill Gates had average business savvy, but happened to be in the right time at the right place. P.T. Barnum managed to get rich because the schemes he cooked up happened to work, against every prevailing wisdom of the day.

    If you want to see how luck plays a very large role in getting rich, check out the follow-up ventures of people who strike it rich - Paul Allen being the poster boy for that. Yes, there's a good chunk of skill, intelligence, hard work and sociopathy involved - but to argue that anyone who has the traits will get rich is ignorant.

  • by Surt (22457) on Saturday June 12, 2010 @01:50PM (#32551068) Homepage Journal

    You're telling the story of the exceptions. That's precisely who everyone writes about and finds interesting. Most wealthy people throughout history are inheritors. Families often keep their wealth through 4 or 5 generations, so for every one 'real' success, you have 30-50 wealthy people who achieve success only because of the helping hand of their ancestors.

  • Re:Bullshit (Score:2, Insightful)

    by Anonymous Coward on Saturday June 12, 2010 @02:08PM (#32551224)

    But for most things, there is a time increment below which there is no reasonable need for finer grained liquidity. At one extreme, added liquidity is a benefit, and at the other extreme added liquidity causes instability. Basically, there's a pivot, based on the both the turnover speed and the turnover volume, at which people transition between "I'm buying and selling primarily based on the underlying value of the item" and "I'm buying and selling based on primary based on the fact that someone else is also buying and selling just now". And you could spend a lot of time and energy arguing about where that pivot point is... but you can't really argue that such a pivot doesn't exist. After all, we've seen it in action plenty of times in with these bubbles and busts.

    Currently, stock turnover limits and volume limitations are at their farthest possible extreme (you can buy and resell a share in milliseconds, and the only hard limit on how much stock can move in that timespan is the total amount of stock that exists). And that lends itself to computer algorithms ordering massive massive churn based on game theory guesswork and entirely divorced from reality; bubbles and busts potentially compressed into an hour by hour lifespan.

    Or to reword this from another angle: the ONLY reason you "need" the ability to quickly resell stock you just bought is that millisecond transaction times have created very high speed instability. Just to pick a pair of numbers for illustration, if you were required to hold a stock for at least an hour, and you were not allowed to sell more than a million dollars of stock an hour, and EVERYONE had to obey those rules equally, then obviously stock prices wouldn't change as quickly. A billion dollar investment in that company couldn't be acquired or divested in less than a thousand hours. And on the other extreme, a million small players buying or selling just a few shares each still wouldn't collectively shift the price very quickly, due to the enforced lag of any individual share not being able to change hands more than once per hour. (And, IMO, prices usually shouldn't change so much even on a daily timescale, because the underlying value of a company shouldn't change that fast either).

  • by Shadow of Eternity (795165) on Saturday June 12, 2010 @02:49PM (#32551486)

    Yes, we did, in fact we had an UTTERLY free market. The government did just about fuck all back then except enforce...

    A) The gold standard, used for a good while but truly made universal with the Gold Standard act of 1900, jright around when most of the worst of what I listed occurred. By the way how would you plan to solve the problem of gold scarcity? Do you plan on enforcing some kind of population limit? We went off the gold standard partially because there just wasn't enough gold. Also not as an argument but just a note: the term you are looking for is Fiat money, paper money originally was just a reciept for gold and you can have fiat coinage as well.

    B) White males had this, and except for the usual exception of the top few percentage points most of them had the same problems. In fact the only reason the Triange Shirtwaist factory fire even made the news was because it was women and the cultural image of women back then.

    C) This is a joke right? Saying this is like saying you'd like it if we just had world peace, magically, without doing anything, and then you expect someone to actually list in detail every reason why that won't happen...

    D) So in other words you want exactly what you're arguing against? When the government says no to monopolies they say no to fraud and force, a monopoly destroys the free market by destroying the ability to choose and thus being able to perpetrate of force or fraud it wants due to a lack of alternatives, especially if it's either a necessary monopoly or one so wide-reaching you can't even tell where it begins and ends.

    "Of course there are consequences"

    You dream. In your fantasy free market there's nothing to stop your boss from holding you under wage slavery to begin with, or finding some other way of harming you to prevent you from leaving or out of spite afterwards. Unless of course you hypocritically want the government to get involved.

    "Standard Oil needed to keep prices low to keep up its near monopoly..."

    No, only long enough to destroy the local competition and then it jacked prices up to far higher than they were before. If anyone tried to start up competition then they would be crushed any number of ways, which is why your arguments in favor of Standard Oil are hypocritical and openly contradict point "D". one of the primary means of running a monopoly IS fraud and force, Standard oil used everything from bribery and blackmail to open force against opponents.

    On top of this your argument about any beneficial effects are, like most of the rest of your arguments, driven by an utter lack of factual knowledge: The Automotive Revolution began AFTER the breakup of Standard Oil with the development of the assembly line.

  • by Daniel Dvorkin (106857) * on Saturday June 12, 2010 @03:11PM (#32551624) Homepage Journal

    Bravo!

    Every time the free market fundamentalists start their proselytizing, we need to remind them where their religion inevitably leads. Randroids are as bad as (and have a great deal in common with) Marxists, in their total inability to separate their belief in what should happen according to their ideals from what actually happens in the real world.

  • by Shadow of Eternity (795165) on Saturday June 12, 2010 @03:33PM (#32551784)

    Which is what I started out with addressing. A "Free Market" and a "Worker's Paradise" both require the same thing: Perfect People.

    A "Free Market" requires that everyone behave perfectly, and a "Worker's Paradise" requires everyone legislate AND behave perfectly.

    They're both the same logical fallacy taken in a different direction.

  • by Kupfernigk (1190345) on Saturday June 12, 2010 @03:40PM (#32551824)
    The asset that is moved is exactly the same as it was before, but its price is now $100 instead of $80. So you have in fact just created inflation.

    When the trucker moves the widget from the factory to the store, he changes its value by moving it from the place of creation to the place of use. Any student of economics knows that major economic leaps have taken place when the costs of this have reduced - from carts to canals, from canals to railways. This is because there are real costs involved; you can regard the energy and investment in moving goods as being exactly as much part of their manufacture as pressing or welding. But the electronic transfer of the stock market transfers ownership at negligible cost and therefore adds no value, so any price increase is simple inflation.

    This is exactly what has happened to the economy: house prices inflated, share prices inflated, but the actual value of the underlying assets barely increased. We are now trying to reduce a debt which is purely the difference between perceived value (what people will buy things for) and their inflated value.

    The fact that people like you believe the nonsense you have posted is the underlying fact behind the financial crisis.

  • by AuMatar (183847) on Saturday June 12, 2010 @03:49PM (#32551888)

    Communism works, but it doesn't scale. A dozen or a few dozen people can live that way and be fine. A few hundred can't- greed sets in (or the self-selection breaks down). My hypothesis is it breaks down around the time you can't have a personal relationship with most of the other members- its a lot easier to not give a fuck about someone you don't know well.

    Laisse Faire capitalism is much the same- it can work among a small self selected group, but doesn't scale up without major abuses. What you want is something in the middle.

  • by Kupfernigk (1190345) on Saturday June 12, 2010 @03:53PM (#32551928)
    This is a completely bogus statement. It is the existence of a stock market that creates liquidity, not short term trading. Otherwise, how did capitalism ever manage to work in the days when all trades were recorded in ledgers and not complete till the cash was handed over?

    Originally, the stock market was not a form of gambling but a form of insurance. Investors in trade voyages in the days of sail and marine anarchy expected that some ships would not come back, therefore they wanted to be able to invest in multiple voyages. Joint stock companies formed to carry out a voyage would then sell shares, spreading the risk. (They did this at Lloyd's Coffee House in London.) The sale of shares meant that the money they had invested in the voyage came back to them before the voyage was complete, thus creating liquidity (i.e. the joint stock owners had cash again to invest in new voyages before the first ones returned).

    Short term trading is purely gambling, but does not necessarily create any more liquidity than long term investment. Hence my observation that your comment is bogus.

  • by Artifakt (700173) on Saturday June 12, 2010 @03:55PM (#32551946)

    Bill Gates could afford to drop out of Harvard for something that looked better. That's the typical situation for most of our wealthyest. Surely, if Warren Buffett's dad had sent him to an Ivy League school, it would have been with the understanding that that was THE big break and Warren needed to do everything he could to maximise it, but Warren's the exception. Note carefully what I am saying here. It's not just that most of our richest get starting conditions such as ivy league schools, it's that they get enough breaks to start them off that even attending Harvard without it needing a total commitment is just one of many such breaks.

  • by tepples (727027) <tepples AT gmail DOT com> on Saturday June 12, 2010 @04:19PM (#32552090) Homepage Journal
    Microsoft's monopoly appears to have become limited to home and small business PC operating systems. What is Microsoft's market share in video game consoles? In MP3 players? In smartphone operating systems? In server operating systems? In web browsers, even among users of its own desktop operating system? The widely publicized antitrust lawsuit covered the use of a desktop monopoly to build a web browser monopoly. But now, Internet Explorer is right on the verge of losing its majority, and though it will still enjoy a plurality for the foreseeable future, plurality without majority implies lack of monopoly.
  • ALMOST (Score:5, Insightful)

    by SmallFurryCreature (593017) on Saturday June 12, 2010 @04:40PM (#32552198) Journal

    Close, but no cigar.

    That 0.01 is NOT taken from somewhere else. It is "generated" but generated from nothing. It is the air in the bubble and then it bursts. We had this long before, the great depression was build on it. EVERYONE speculated. And LOTS of money was being generated it seemed, but where did it come from? Nowhere.

    You might have heard of the phrase "your ship coming in". Where does it come from?

    At least in part from the old dutch practice of funding the sailing of a cargo ship by writing out shares. Anyone could fund some money to build/outfit a ship and would in turn get a share of the profits it would generate on its voyage. This was a long term investment as a voyage to the far east could take 2 or more years. It was a also risky, you could build a bridge to the far east out of all the lost ships (oh okay, you can't but it sounds dramatic).

    Now say that I took a share of 100 florins (a shitload of money but a nice round number to work with). I watch the ship sail and hope that it will come back in 2 years time with a fat cargo of spices that will trade for a fortune. My ship will have come in. Or it will sink.

    BUT this ship does not exist in a void. It will encounter other vessels. Say that six months out it has crossed the horn of Africa. A seriously risky part of the journey. It comes across another ship making its way back and this ship reports what has happened to Holland. What happens to my share? Well nothing EXCEPT that SOMEONE might be willing to pay me more then 100 florins for it because the risk of it failing has now been reduced. My share has increased in POTENTIAL value. Someone with 200 florins might buy my share. I get a lower but certain profit while that person will gain less of a profit IF the ship comes in but has a higher chance of it then I did.

    Other factors can add or substract from this. Say that it has been a calm year at sea and I get news that dozens of ships are making their way back. The price of spices will fall. Less risk of no return but less profit. Or say that nobody has yet reported on my ship at all. Risk has sky rocketed that it has sunk and my share is without value. Might I sell it lower?

    THAT is stock market speculation. Betting on the POTENTIAL value of something. The problem is NOT with the speculation itself. The problem is when the speculation starts to be based on nothing. Those ships need to build, to be sailing, to be buying and selling cargo in order for there to be anything to speculate on. And that seems to get forgotten.

    The speculation is no longer about the chances of the ship making it with a good cargo but on the speculation itself. Speculators no longer follow the shipping news but share prices themselves.

    Take the recent price drop of BP shares. Why? Because of the oil spill? The company makes 60+ million profit PER DAY! The cost of the oil spill are spare change. Yes it will hurt their bottom line a bit but it is really just the cost of doing business. There should be no selling going on because the company is at no risk. Without speculators, there would be no selling going on. No long-term investor would have a reaosn to sell. Not buy perhaps but not sell since selling when a stock is going down means you are loosing money. Only the short term speculators have to sell because they can't afford to simply wait out their investment and need their money now.

    We have allowed the stock market and the banks to turn themselves into "THE economy". A bank should be a service provider that real business makes use of. The same a law firm or cleaning company. Instead they have come to think of themselves as the most important part, the very engine of the economy. It is silly.

    Imagine this. A justice system is part of civilization right? But when you consider the justice system to BE civilization, I think you would not like the results.

    Don't confuse the means with the end. The tool with the goal.

    There is nothing wrong with speculation, there is something wrong with

  • by An Onerous Coward (222037) on Saturday June 12, 2010 @05:13PM (#32552410) Homepage

    There's some truth there. But I think that betting that Company A is going to make good decisions and deliver value is very different from betting that the market will react a certain way to a certain piece of news in the next five minutes. One is betting on the company, the other is betting on the market itself (which is only supposed to be a representation of the aggregate value of certain companies).

  • by Jane Q. Public (1010737) on Saturday June 12, 2010 @07:24PM (#32553204)
    His point is still valid. It depends on what you mean by value.

    The value an individual places on a good has little economic meaning, except in terms of purchasing decisions. You might individually value my CD player at $1,000,000. But that means absolutely nothing to the economy, unless you actually buy it. That is the only thing the economy sees, and that is the only way to measure actual economic value: either what you paid for it, or what you can show others are willing to pay for it. Anything else is empty theorizing. And (I believe) that is what GP is arguing: all that speculating left a huge gap between "theoretical value" and actual economic worth. That is when "market corrections" occur, just as we saw. (Note the word "correction": it means things are being re-evaluated closer to their actual economic worth.)

    There are only two ways to add actual value to the economy: add something of concrete worth -- such as a good or service -- to the pool of goods and services that make up the economy, or improve something that is already in that economic pool, in such a way that it is now worth more and commands a higher price. Those are the only kinds of "value" that an economy actually respects.

    If you simply add numbers (fiat money) to the economic pool as in your example, you are not creating economic value, you are creating inflation.

    Despite claims to the contrary by government and financiers, actual economic value is not created -- real growth of the economy does not occur -- as a result of speculative trading. There is a reason it is called "trading". You may value that stock at $100, but if you move alone, others are only going to pay you $80 for it. If a market rush occurs and they all suddenly start paying $100 instead, you have not created money, what you have created is a "bubble": a discrepancy between theoretical valuation and actual economic worth. (Which, if it persists, is inflation.) You have added exactly zero to the economy, because no additional goods or services have been introduced, and nothing has been improved to a state of higher real economic value. You have only changed the numbers.

    Some people can grow rich by working the edges of these bubbles, speculating on price transitions. But just as GP said, the real money simply comes from other people: the losers of the same game. It really does add nothing to the overall economy except empty numbers... and as we have seen very clearly in the last couple of years, the numbers really are empty. They do not reflect economic reality.

    In case you hadn't noticed, Keynesian economics has been disproven many times over. If I were you, I would start paying attention to those of the Austrian school, who predicted, clearly, publicly, and well in advance -- you can find old videos of Peter Schiff and Ron Paul on YouTube if you need convincing -- just exactly the economic situation we have seen this last year or two. In fact, there is a very good compilation, called "Peter Schiff Was Right", showing clips from TV shows a few years ago in which Peter Schiff disagrees with the "experts" on the economy. They even laughed at him. But as it turned out he was exactly right, and the others were dead wrong. This is no coincidence: he (and Paul, and others of the Austrian school) explained not only what was going to happen but also why. It's all right there for everybody to see.
  • by Anonymous Coward on Saturday June 12, 2010 @11:21PM (#32554302)

    Being connected is a perk of being rich. It is the mechanism by which the youth of the rich stay rich. It's the only value in going to an ivy league school over most other colleges - to tap into the network of the rich.

  • Re:that, and... (Score:3, Insightful)

    by shmlco (594907) on Sunday June 13, 2010 @03:11AM (#32555222) Homepage

    Ditto. There was talk a while back of charging $0.25 a share per transaction. Doing so would discourage flipping stocks just because it rose ten cents.

    I also like the idea of dropping capital gains taxes on stocks held longer than a couple of years. Do that, and you encourage long-term investment in worthwhile companies.

    Better yet, do both.

  • by Anonymous Coward on Sunday June 13, 2010 @07:05AM (#32555898)

    Ok, you make 10K per year. Food and rent takes 9.5K. How much money do you have to risk? Hope you didn't want a minimum of comforts or medicine too.

    You make 200K per year. Food and rent (even at a much nicer places) take 40K per year. How much money do you have to risk?

    Again, I don't see your point. The poor, in your case, can risk 0,5k and the rich in your case, can risk 60k. The amounts gained or lost obvious differ in raw value, but the percentages remain the same. Both as a rich and as a poor person, you simply do not invest what you need for short-term expenses like food and rent.

    Firstly, you cannot count: the rich has 160K per year left, not 60K.

    Secondly, you cannot count: take 0.5K and invest it for 20 years with an exceptionally good, visionary strategy that gives you 10% return per year. At the end of 20 years you will retire with 3.3K. Enough for half a year's rent and food ... (assuming there's no inflation...)

    Do the same with the rich person's 160K and with 10% annum you will retire with 1.072 million. Even with a sucky, 5% per year run-of-the-mill investment strategy a dumb but rich person can find the rich person ends up with 424K after 20 years.

    That's the fundamental asymmetry: the poor stays poor even if you count with percentages. The rich gets much richer.

  • Re:Bullshit (Score:3, Insightful)

    by Xyrus (755017) on Sunday June 13, 2010 @12:39PM (#32557412) Journal

    The "free market" existed before the Fed, and yet you seem to gloss over the financial disasters during that time. The free market existed in England, and there were a number of economic travesties there too.

    Economic anarchy is not the answer. PEOPLE ARE ASSHOLES. In economic anarchy, the assholes will rule because they don't give a shit about anyone else. They care about money, and go to any lengths possible to get it.

    Free Marketers/Economic Anarchists seem to operate in this idealized world where people will play fair. PEOPLE DON'T PLAY FAIR. They will collude. They will conspire. They will sabotage. They will be underhanded, sneaky, back stabbing bastards. Businesses DO NOT operate under the premise of what is best for society. They operate under what's best for profit. If that means dumping a metric assload of mercury into the water table is more profitable than cleaning it up, then they will do it. If that means assassinating a business rival who refuses to bend to your will, then that option is on the table.

    The free market operates in the best interest of those who have the money and power. The free market does not care about society, other than to ensure a constant supply of cheap, stupid, laborers and consumers. The free market does not care about sweatshops, slavery, child labor, or unsafe working conditions. The free market does not care about safety regulations or the environment. The free market is profit at all costs. The free market is finding loopholes and stretching legalities to their utmost. The free market is profit regardless of the effects on the rest of society.

    History is replete with examples of what a "free market" is capable of, and none of them are pretty. Free markets eventually devolve into economic tyranny. Without a strong government to enforce some level of decency, a free market becomes the epitome of human ugliness. Eventually, that gets corrected as well (see the French Revolution).

    Pure free marketers are just as stupid and naive as pure Marxists. They both make grave assumptions about human nature which are patently absurd and have no scientific merit. All people are capable of becoming atrocious sociopaths. Several psychological experiments (along with history itself) demonstrates this clearly. As long as that remains part of human nature, pure free markets and pure communist systems will never work without terrible consequences.

  • Re:Bullshit (Score:3, Insightful)

    by causality (777677) on Sunday June 13, 2010 @07:17PM (#32559640)

    wish people would pick the denomination that pleases them, worship at its altar if they like, and then realize how pointless it is to endlessly debate non-resolvable religious issues

    Well, libertarians have Rand, and hardcore socialists have Marx. Convincing them that their beliefs are fundamentally religious is tricky, however.

    The problem or the religious element is the exclusive either-or thinking. For example, I myself tend towards libertarian philosophy. Specifically, I believe that the only legitimate purposes of government are defense, law enforcement, and public works. The only legitimate purpose of law enforcement is to prevent one person from using force or fraud to deprive another person of his/her inalienable rights. There are a tremendous number of laws that would be repealed if we stuck to these principles.

    The nuisance is that if you advocate such views, people assume you want to throw the baby out with the bathwater. The fact that I never make such statements doesn't stop them from assuming I want an anarcho-capitalist society, that I want to eliminate every last regulation of all markets, etc. I'm not always sure if it's a deliberate attempt to belittle what they dislike because they are childish, or if they truly think this is legitimate disputation.

    I think it's that they are so shallow they cannot help but pigeonhole any view that is not their own. They don't like it, it isn't what they believe, therefore it must be portrayed as some kind of pure evil, like religious heresy. Mere disagreement based on different worldviews doesn't give them the visceral satisfaction of condemnation that they feed from. The most extreme libertarians would agree with me on the points I made in the first paragraph above. Therefore, they assume I am exactly like them on all other possible points and proceed accordingly.

    Maybe no pigeonholing is involved. Perhaps again because they are shallow, they recognize only the most extreme form of any belief. The notion of studying many philosophies, adopting the principles that make sense, and rejecting the ones that do not is alien to them. It's all-or-nothing, with-us-or-against-us. That's why these things are needlessly religious in nature. The folks who do this are like sheeple or like robotic clones who are think everything must be partisan politics because that's what they see in the media.

    Whichever is actually the case, it poisons the well and devalues what could otherwise be edifying discussion.

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