JP Morgan Chase Smith Barney whatsis

[Hungary Jack]

Oops. It might be $9B.

Sorry Dontrelle.

[longhornbaseball]

I really like this blog post.

http://peerreviewedbymyneurons.wordpres ... expertise/

Imagine nine poker players seated at the final table of a major tournament. Although they posses a variety of different skillsets and backgrounds, there is one thing they have in common. They have all had the luck necessary to win the majority of the many 50-50 hands that arise during a tournament. Nobody reaches a final table by only gambling as an overwhelming 80-20 favorite.

Now imagine nine random Presidents/CEOs of large finance firms or banks. In some sense, they are also finalists in a tournament. Hordes of smart young people enter the finance industry each year, but only a select few reach the top. Like the pokers players at the final table, the CEOs have benefitted from a perfect combination of skill and luck. Nobody is repeatedly finding risk-free piles of money lying around in a competitive market, and that means each CEO must have successfully gambled on at least a few big ideas. Even if the CEOs repeatedly found major opportunities with a 70% chance of success, they never would have reached the top without beating the odds that they would fail.

Although poker players and finance CEOs rely to some degree on luck, the perception exists that we have identified the ones who are the most skilled. This is where there is a big difference between the two groups. Evaluations of poker players are based on hundreds of thousands of hands, not the outcome of a few tournaments. I won’t venture a guess as to how many risky decisions a finance CEO makes during his first 25 years of employment, but I’m confident the number has substantially less descriptive and predictive power than a poker player’s vast history. Finance CEOs were clearly wise with many gambles — that’s why they are where they are — but the small sample size means we can’t ignore the fact that some of them are CEOs instead of senior managers because they lucked out on bad gambles or a long string of coin flips.

All of this is to say that when we think about the expertise of finance bigwigs we should be more mindful of “outcome bias,” the tendency to focus on the outcome of a decision rather than the decision itself. Imagine LeBron passes up an uncontested dunk but seconds later makes a contested three pointer. Did he make a good decision? The answer is obviously no, but many people might say yes because they fail to understand that good outcomes don’t retroactively create good decisions.1 For example, one recent study found that ethically questionable behavior produces less condemnation when it leads to a positive outcome, even if the outcome is entirely due to chance. In their pioneering work on the issue, Jonathan Baron and John Hershey found that when people were asked about the quality of a medical decision, they said the thinking behind the decision was better when they were told the decision led to a positive outcome.

The lesson is that if a Wall Street CEO rises to his position by making a string of profit-growing decisions, the decisions may not have all been wise given the conditions at the time. That doesn’t mean Jamie Dimon isn’t a smart man who knows a lot about the American financial system, but it does imply that even in a vacuum (i.e. no consideration of political or financial motivation) we should be marginally more skeptical of the the expertise of influential finance people.

In the early days of the internet there was a classic scam where somebody claiming to be an NFL gambling expert would send 800 people a free pick during the first week of the season. The catch is that half the people were told a certain team would cover the spread and the other half were told the team’s opponent would cover the spread. The same thing was repeated the following week among the 400 people who initially received the winning pick. After four weeks 50 people had received four consecutive winning picks, and at that point the scammer asked them to pony up $49.95 to subscribe to the picks for the rest of the season.

The beauty of the scam is that 1/16th of your initial sample will always get the four good picks. Similarly, in a poker tournament nine people will always get lucky enough to make the final table. When it comes to finance, some set of people will always rise to the top of our largest institutions — after all, the banks can’t be leaderless. But when these leaders are annointed, it’s important to be mindful that in an arena full of unpredictability, a rise to the top is not always as indicative of ability as we might think.

[pioneer98]

Yes, I read that also. I thought it was very well put together.

[pioneer98]

Check out this stuff. This is text from some exhibits at the Herbert Hoover Presidential Library in West Branch, IA. We paid a visit this week:

[SHOW]

[SHOW]

Just another case of history repeating...

[pioneer98]

A software glitch caused Knight Capital to make thousands of really, really dumb trades in a 45 minute span. They lost $440 million in 45 minutes, or almost $10 million per minute.

You know, I think I'd have a safeguard in my software, so that after I lost the first, say, $50 million (which for Knight would be close to half of last year's profits), I'd have a kill switch. But what do I know?

Even if the glitch had not happened, this type of computer trading is not what I would call "investing". It is playing games with short-term volatility to try to make quick money. Sometimes it works. And sometimes it blows up in your face. It's basically gambling.

Knight Capital trading debacle shows Wall Street frailties

The high-speed trading arms race being waged on Wall Street has finally claimed its first major casualty.

Knight Capital Group, a brokerage that handles nearly 11% of all stock trading in U.S. companies, is in danger of collapsing after a software glitch triggered millions of unintended orders. The New Jersey firm lost $440 million in less than an hour — nearly four times the company's profit last year.

The blunder, which Knight's chief executive said on television was "a bug, a large bug" in its computer systems, caused Wall Street to shudder. Major clients including Vanguard Group, E-Trade and TD Ameritrade, which rely on Knight to fill orders for retail investors, pulled their business on fears that the damage isn't over. Leaders of the embattled brokerage scrambled Thursday to find rescue funding or even a buyer.

But, more broadly, the debacle highlights concerns on Wall Street and in Washington about structural flaws in the U.S. financial system. Observers are worried that the reliance on computer-driven trading, where stocks are bought and sold in the blink of an eye, could lead to a major equities meltdown.

"The ghosts in the machine have gotten out of control," said Larry Tabb, chief executive of Tabb Group, a financial research and advisory firm. "There are increasingly more problems and we haven't been able to get this right."

Knight's software executed in a matter of minutes a series of trades that were designed to be done over a period of days. This glitch is just one of a series that have plagued Wall Street in recent years.

In May, the Nasdaq Stock Market botched Facebook Inc.'s initial public offering. The latest glitch is also an echo of the 2010 "flash crash" that terrified investors after high-speed trading went haywire and $1 trillion vanished from the stock market.

[slide_into_first]

Knight has been a major pain in the ass for small investors for about 20 years, acting as market maker for otc stocks. They use the same techniques seen in the futures market to force people out of good positions by running the price below stop loss points or forcing short squeezes. I'm not crying, it just means a stock investor either has to take a very long time frame, or play their game and buy below support or sell above resistance. Timing is everything.

Anyway, this disaster couldn't happen to a bigger bunch of a--holes. There is justice sometimes.

[pioneer98]

I figured out a while ago the only way for a small-time investor is to go over a long time frame. You will never beat these guys at the short game. They like to create all this volatility so they can take money away from the muppets, who are one step behind. The small investor can never seem to quite buy in at the bottom or sell quite at the top. But value is still value. If you pick a good stock it will ultimately rise if you wait long enough (meaning: years). It will just be a roller coaster ride on the way thanks to these crooks.

[AWvsCBsteeeerike3]

I figured out a while ago the only way for a small-time investor is to go over a long time frame. You will never beat these guys at the short game. They like to create all this volatility so they can take money away from the muppets, who are one step behind. The small investor can never seem to quite buy in at the bottom or sell quite at the top. But value is still value. If you pick a good stock it will ultimately rise if you wait long enough (meaning: years). It will just be a roller coaster ride on the way thanks to these crooks.

I think that's not true. True, if you hear on the news that Apple just realized that they are going to be 3 weeks late on delivering the new iPhone 65.4 and it's going to cost them $2 billion dollars, then yeah, it might be a little late to short stock at that point. But, if you really investigate only a couple companies and follow them and call into their quarterly board meetings and stuff like that, you can in the short term make money.

I haven't done it in a while because I think the market it somewhat inflated and tougher to find undervalued companies and I've been too busy at my real job. But, back in 2009, I think early 2009, I started trying to make money off it. And tripled my initial investment in just over a year. It really wasn't a lot of money, but it was certainly fun. Of course, early 2009 was probably one of the best tiems ever to buy stocks since the dow was at what like 8K

[pioneer98]

I think you are probably right. The “big” moves in stock prices are generally still dictated by quarterly results, analyst upgrades/downgrades or other news events like that. You could probably make money tracking it closely like that. But stocks still tick up and down every day even when there is no news.

I sense there are people out there doing the “pump and dump” scheme, where they bid up the price of a stock to get it some momentum, wait for others to get in on it and then pull out the rug. They probably short it, too. These people don’t report out at the quarterly meetings.

If you have a few hundred million dollars to throw around, you only need to move some stocks 0.25% and you’ve made another million. Then you have a software program replicate that transaction as often as you feel like it. There are other banks out there with competing software programs, and so it is a cat and mouse game. The people who get screwed IMO are the people who think they can swim with these sharks, and anyone who happens to be collateral damage, like their "clients". What has been happening lately is that the banks end up eating each other alive.

Not a great example, but look at what BVSN did in the past year. These guys are now pumping SYNC. These are much smaller outfits, but as I said, I think there are guys attempting this with large stocks.
http://seekingalpha.com/article/445311- ... ock-market

[AWvsCBsteeeerike3]

Okay, yeah if you try to make money by becoming a day trader with $50K, you might as well just go to the casino.