pascalwager wrote: ↑Wed Sep 09, 2020 10:35 pm
Isn't 90% of the trading performed by PhD's in finance/math representing large investment companies and other financial institutions? Also, when we buy index funds aren't we just buying a market that was already determined by those same PhD's?
Absolutely not. There are conflicting reports of how much trading is automated, how much trend following quant strategies, and how much indexed, but they all point to the declining impact of the kind of company-based analysis that was prevalent decades ago. Two years ago, it was reported that algorithmic trading made up 50-60% of all daily trading. Last year, The Economist
reported that 35% of trading was done by computers, and only 24% by humans. https://www.statista.com/chart/20245/sh ... -equities/
Yet another set of statistics found that 60% of all investments now were passive (i.e. indexed) and 20% using quantitative trend following models. https://www.cnbc.com/2019/06/28/80perce ... pilot.html
. It is probably very hard to get completely accurate statistics, but all the numbers we see point in the same direction. Wise PhDs who spend hours poring over balance sheets and interviewing top corporate executives have little to do with how prices are now being set.
The prices you see displayed of the market is the price that the last lot of shares of a security trade at. Almost always these shares trade in blocks of 100. Many of these are automated trades performed by the supercomputers that have lightning fast connections to the stock exchanges and buy and sell 100 share lots every second so that they can make money on fractions of a cent differences in price. You can go to the NASDAQ site and track the trades for any given stock in real time to see how true this is. Rarely a block of more shares trades. But it is possible for the sale of a single share to change the price of a security and because everyone with PhDs is aware of how dominant momentum is, that is where the geniuses are putting their attention as there are many, many ways that these prices can be manipulated. The PhDs today are often PhDs in physics and math because those are the PhDs who can do the kind of very complex, computerized math it takes to make money in this environment.
I am close to someone who does the kind of math that Wall Street pays $$$$ for you can be sure, they aren't using that math to discount the value of future earnings of companies. The typical actively traded share is not held for more than a day or two, often only for a few minutes.