> Investors are using real-time satellite images to predict retailers’ sales. Is that cheating?
This is no more "cheating" than using any other pseudo-publicly available sources of information, such as credit card purchase data, yelp/foursquare/FB checkins, or whatever. It's entirely legal in the same way sitting outside Macy's and counting the number of people who enter and leave through the public entrances.
It's not cheating, but it gives one a perspective on just how far humanity can go in figuring out ways some humans can get an advantage over other humans in a silly, arbitrary, zero-sum PvP game we've somehow evolved.
I know that's unfair. But the way I feel, there's lots of absurdity in this. In a more reasonable world, if you wanted to know when some CEO is leaving on vacation, you'd just ask them. You wouldn't have to spy on them with a satellite.
The act of trading is zero-sum(slightly worse when you consider taxes and fees). On one side, a person is getting a right to an uncertain cash flow based on the companies performance and giving up a lump sum of cash in the present. On the other side the person is giving up the uncertain future cashflows for a lump sum in the present. Both people can win based on their risk/liquidity preferences but one person's upside is the other person's downside.
I'm not sure you're using the terminology zero-sum correctly. Yes bad investments can be zero-sum, but as a whole, the economy is positive-sum. Positive sum doesn't mean "Everybody gets paid the same", it means that the value output from a closed system exceeds the input (e.g. greater than the sum of its parts)
If you're referring to derivitives, you could technically refer to it as zero sum, since speculating on a contract between two parties doesn't necessarily create value. But there's an argument to be made that options actually help liquidity, and the act of being able to purchase insurance contracts on investments reduces risk, meaning more people are likely to invest, which does, in the end, actually create value.
It does, but I get the distinct feeling that we're putting cart before the horse. I mean, we ought to be able to correctly price wheat and steel better than through ever-growing financial industries and having people use satellites to spy on CEOs.
I think we are saying the same thing here. I am talking specifically about the trade and not the macro economy. In the case of buying a security, the expected value of the buyer is the future cash flow from the security minus the purchase price. The expected value of the seller is the proceeds of the sale of the security minus the opportunity cost of the future cash flows. These two sides are exactly the same (again ignoring taxes and fees)
This is true of any security be it equities or bonds or derivatives.
Value isn’t created through trading, but both parties can be made better off because their preferences are different. For example I’m in my late 20’s and don’t need all of my income to live. I don’t mind taking risk for a higher return I could enjoy in the future. My parents are in their mid 60s and have a more immediate need for their money and would be willing to take less return for more stability. Me trading cash for their equities would make us both better off.
No. People who make money day trade with options. You and I do long-term stock purchase (“show me the dividends”). But if you can afford to trade everyday like a full time job, you do options.
There's a strong case for firms to publish more and higher quality data now the web makes it easy. Forget sattelite images use carpark stats from entry and exit and so on. Many of these equity analysts will do your job of analysing the data for you giving you a bigger lead on a developing problem or strategy failure allowing for sooner correction. On the flip side, earlier notice of strategy success for quicker ramp up decisions.
"Yes but we do more sophisticated data analysis anyway" - firstly, I call BS on that CEO & management career self-marketing and secondly, if I'm wrong and it's already being done at an excellent level there is nothing to fear putting it out there - you can spank analysts doing a shoddy job with hard analysis scotching undeserved "impression, zeitgeist and rumour" based negative market sentiment.
Of course every board of directors should have an IT committee and a data committee to go with the audit committee with a similarly highly qualified chair of those comittees. It's basically unthinkable not to have a very qualified accountant on the board. Should be the same for IT and Data - although IBM Global Services, Accenture, Oracle etc etc will campaign heavily against having people who know what they're doing on the board!
Chair of the data committee would be a crucial figure in earnings calls and so on - they better know their stats!
Investment idea: build a bunch of projectors that fool orbiting satellites into reading empty parking lots as full, then short retailers’ stocks at earnings time, knowing that all the big smart money will be on the other side.
This is no more "cheating" than using any other pseudo-publicly available sources of information, such as credit card purchase data, yelp/foursquare/FB checkins, or whatever. It's entirely legal in the same way sitting outside Macy's and counting the number of people who enter and leave through the public entrances.