Comments on: How the Nobel economists changed investing forever http://blogs.reuters.com/great-debate/2013/10/15/how-the-nobel-economists-changed-investing-forever/ Thu, 21 Jul 2016 07:57:19 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: matthewslyman http://blogs.reuters.com/great-debate/2013/10/15/how-the-nobel-economists-changed-investing-forever/#comment-77582 Fri, 18 Oct 2013 08:49:24 +0000 http://blogs.reuters.com/great-debate/?p=25004#comment-77582 A little more thought on this matter has led me to pay more attention to the principles these Nobel Laureate economists have been expounding: short-term market movements are bound to be fairly random (within ranges and within trends determined by complex wider market circumstances); and it’s bound to be hard to predict stock movements over a short time horizon, because there’s only a finite amount of actual information. (There may be an infinite amount of disinformation, spin and rumor masquerading as “Market News”, and there may POTENTIALLY be an infinite amount of analytical intelligence; yet since there is only a finite amount of information and a finite number of ways of analysing that finite information, there will be a fundamental limit to the predictability of markets over short time horizons).
At least, that’s how I’m reading this, without actually reading the economic papers in question… (I should probably do that at some point!)

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By: Koan http://blogs.reuters.com/great-debate/2013/10/15/how-the-nobel-economists-changed-investing-forever/#comment-77533 Wed, 16 Oct 2013 20:26:10 +0000 http://blogs.reuters.com/great-debate/?p=25004#comment-77533 They changed it? Investing seems like gambling to me now, is that what they were after?

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By: matthewslyman http://blogs.reuters.com/great-debate/2013/10/15/how-the-nobel-economists-changed-investing-forever/#comment-77509 Wed, 16 Oct 2013 12:25:14 +0000 http://blogs.reuters.com/great-debate/?p=25004#comment-77509 brianpforbes rightly reminds us of those market participants who have been finding ways to gain trading profits whilst immorally transferring risk to those less able to understand the risks, without fulfilling their “duty of care”. Perhaps Ms. Shrager intends to discuss that in another article?
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> “If you believe in efficient markets”
…Not sure I fully do. The “efficient markets” hypothesis is becoming gradually truer over time, as regulation gets a little more effective, as the dissemination/leaking of information gets normalized / harder to prevent, as online price-comparisons get easier for ordinary people to do and as automated trading augments the fallible intelligence of avaricious human beings. However, as Ms. Shrager rightly suggests in part:
complete truth ≠ available information
information deliberately disseminated by interested parties ≠ information required to make a responsible decision
risk ≠ perception of risk (note psychological theories of loss aversion etc.)
information ≠ knowledge ≠ intelligence
access to information ≠ capacity to process it
access to market ≠ willingness to take advantage of this access (we are creatures of habit, and like familiarity and feelings of trust).
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The market does not function on risk, it functions on PERCEIVED RISK, which is often VERY different from real risk. Market participants do not act on information, they act on the information they have the capacity to acquire and intelligently process, which they have prepared themselves and done the work to understand (and even then, most market participants still perceive the market through a fog of emotions and a lens of greed.)
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Einstein was brilliant, not because of his access to information or publishers that other scientists didn’t have, but because of his ability to perceive the workings of physics in a new way when looking at the very same data that other scientists had already examined! No algorithm could ever replace him.
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Not every market participant will be an Einstein of trading (and even as a “crowd-sourced” “intelligence”, any market comprising a large component of fallible people and “flash-crash” algorithms is going to be less than “efficient” itself). Some intelligent people (who might uniquely be able to process certain information in correct combinations), may have access to very little capital! Every student of history knows that there are some very intelligent but very poor people, and some very stupid but very rich people (riches aren’t always proportional to intelligence).
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CONCLUSION:
Take a man who has worked in mining all his life, and who understands all the basic mathematics of the market and can visit the sites of mining firms you might invest in, talking with miners at grass-roots level in these companies; and if I were a betting man, I would wager every last penny I had that he would “outperform” expert market analysts with access to the exact same information, facilities and people!
The market may be “efficient”, but imagine what it COULD be if only the right people had relevant industrial market access and financial literacy!

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By: canrancher http://blogs.reuters.com/great-debate/2013/10/15/how-the-nobel-economists-changed-investing-forever/#comment-77508 Wed, 16 Oct 2013 12:13:18 +0000 http://blogs.reuters.com/great-debate/?p=25004#comment-77508 Higher risk has a potential for higher rewards. It also has the potential for high losses. That is how an efficient market “works”. Central bank policy is attempting to remove the chance for loss, meaning there is only “reward” to risk. This stance leads to the misallocation of money and causes asset bubbles, ie the dot com and housing bubbles. As long as the Central Banks can QE, this will work. But as the dot com and housing bubbles showed, at some point the music will stop and an implosion will occur.

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By: brianpforbes http://blogs.reuters.com/great-debate/2013/10/15/how-the-nobel-economists-changed-investing-forever/#comment-77482 Wed, 16 Oct 2013 01:04:15 +0000 http://blogs.reuters.com/great-debate/?p=25004#comment-77482 Any defense of rights of gambling for the wealthy necessarily contains holes, and this piece is no exception. This statement :
“But if the bad actors in finance didn’t know — and they had a fantastic profit motive to figure it out — how can we expect policymakers and regulators to know better?” stands out in particular, since (1) many banks and regulators did know a crisis was in the making, but continued regardless as it was massively profitable, (2) the existence of ‘too big to fail’ institutions means that banks currently have strong financial incentive to create and pop bubbles, as losses are socialized.

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By: Missinginaction http://blogs.reuters.com/great-debate/2013/10/15/how-the-nobel-economists-changed-investing-forever/#comment-77469 Tue, 15 Oct 2013 21:19:15 +0000 http://blogs.reuters.com/great-debate/?p=25004#comment-77469 The last paragraph here is the most cogent.

I wonder why John Bogle never got nominated a Nobel prize?

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By: tmc http://blogs.reuters.com/great-debate/2013/10/15/how-the-nobel-economists-changed-investing-forever/#comment-77466 Tue, 15 Oct 2013 20:30:46 +0000 http://blogs.reuters.com/great-debate/?p=25004#comment-77466 I’m not an economist, but that sure seemed to make a lot of sense.

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By: Benny27 http://blogs.reuters.com/great-debate/2013/10/15/how-the-nobel-economists-changed-investing-forever/#comment-77465 Tue, 15 Oct 2013 20:30:36 +0000 http://blogs.reuters.com/great-debate/?p=25004#comment-77465 Economists are not scientists, please stop trying to conflate the two. Economics being an arm of political science, it cannot be a natural science.

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By: BidnisMan http://blogs.reuters.com/great-debate/2013/10/15/how-the-nobel-economists-changed-investing-forever/#comment-77463 Tue, 15 Oct 2013 19:06:55 +0000 http://blogs.reuters.com/great-debate/?p=25004#comment-77463 No. No. Something rings untrue here. Nothing has changed. Investing is still a euphemism for speculating. The ability to measure risk in these ways will evaporate once every trader does it. The 1% will still get richer off of inside information. The losing gamblers will still get bailed out by the taxpayers. Sorry, but tomorrow will be just another day on Wall St.

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