{"id":33359,"date":"2018-04-13T11:16:39","date_gmt":"2018-04-13T16:16:39","guid":{"rendered":"http:\/\/olduvai.ca\/?p=33359"},"modified":"2018-04-13T11:16:39","modified_gmt":"2018-04-13T16:16:39","slug":"quick-take-the-risk-of-algos","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=33359","title":{"rendered":"Quick Take: The Risk Of Algos"},"content":{"rendered":"

Quick Take: The Risk Of Algos<\/a>\u00a0<\/span><\/h3>\n
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\u201cMike \u2018Wags\u2019 Wagner:<\/strong> \u2018You studied the Flash Crash of 2010 and you know that Quant is another word for wild f***ing guess with math.\u2019<\/em><\/p>\n

Taylor Mason:<\/strong> \u2018Quant is another word for systemized ordered thinking represented in an algorithmic approach to trading.\u2019<\/em><\/p>\n

Mike \u2018Wags\u2019 Wagner:<\/strong> \u2018Just remember\u00a0Billy Beane<\/a>\u00a0never won a World Series .\u2019\u00a0\u2013 Billions,\u00a0A Generation Too Late<\/a><\/em><\/p><\/blockquote>\n

My friend Doug Kass made a great point on Wednesday this week:<\/p>\n

\u201cGeneral trading activity is now dominated by passive strategies (ETFs) and quant strategies and products (risk parity, volatility trending, etc.).<\/em><\/strong><\/p>\n

Active managers (especially of a hedge fund kind) are going the way of dodo birds \u2013 they are an endangered species. Failing hedge funds like Bill Ackman\u2019s Pershing Square is becoming more the rule than the exception \u2013 and in a lower return market backdrop (accompanied by lower interest rates), the trend from active to passive managers will likely continue and may even accelerate this year.\u201d<\/em><\/p><\/blockquote>\n

He\u2019s right, and there is a huge risk to individual investors embedded in that statement. As JPMorgan noted previously:<\/p>\n

\u201cQuantitative investing based on computer formulas and trading by machines directly are leaving the traditional stock picker in the dust<\/strong>\u00a0and now dominating the equity markets.<\/em><\/p>\n

While fundamental narratives explaining the price action abound,\u00a0the majority of equity investors today don\u2019t buy or sell stocks based on stock specific fundamentals. <\/strong>F<\/em>undamental discretionary traders\u2019 account for only about 10 percent of trading volume in stocks. Passive and quantitative investing accounts for about 60 percent, more than double the share a decade ago.<\/strong>\u201d<\/em><\/p><\/blockquote>\n

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As long as the algorithms are all trading in a positive direction, there is little to worry about.<\/strong> But the risk happens when something breaks. With derivatives, quantitative fund flows, central bank policy and political developments all contributing to low market volatility, the reversal of any of those dynamics will be problematic.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/article>\n<\/div>\n<\/section>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Quick Take: The Risk Of Algos\u00a0 \u201cMike \u2018Wags\u2019 Wagner: \u2018You studied the Flash Crash of 2010 and you know that Quant is another word for wild f***ing guess with math.\u2019 Taylor Mason: \u2018Quant is another word for systemized ordered thinking represented in an algorithmic approach to trading.\u2019 Mike \u2018Wags\u2019 Wagner: \u2018Just remember\u00a0Billy Beane\u00a0never won a […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[13556,14155,19776,8258,4715,19777,19775,19773,15470,690,19778,19774],"class_list":["post-33359","post","type-post","status-publish","format-standard","hentry","category-economics","tag-algorithmic-trading","tag-algos","tag-doug-kiss","tag-etfs","tag-flash-crash","tag-mike-wagner","tag-quant","tag-quantitative-investing","tag-real-investment-advice","tag-risk","tag-taylor-mason","tag-trading-machines"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/33359","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33359"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/33359\/revisions"}],"predecessor-version":[{"id":33360,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/33359\/revisions\/33360"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33359"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=33359"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=33359"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}