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I'm with you. At this point the extremely open-ended, poorly written and understood laws exist to serve the uber-ambitious career-building prosecutors seeking the limelight.


Insider trading laws also practically do not apply to members of congress -- prior to 2013 congress was exempt to insider trading restrictions and they have since scaled back reporting requirements. As a class, congress magically out performs the market every year, yet I don't know of any instances a sitting member of congress being charged with any insider trading charges.


Maybe not: http://www.yale.edu/leitner/resources/papers/Eggmueller_2011... ("The average investor in Congress underperformed the market by 2-3% annually during this period, a finding that contrasts with earlier research showing uncanny timing in Congressional trades during the 1990s. Members in- vested disproportionately in local companies and campaign contributors, and these political" investments outperformed the rest of their portfolios (local investments beat the market by 4% annually). Our findings suggest that informational advantages enjoyed by Congressmen as investors arise primarily from their relationships with local companies, and that widespread concerns about corrupt and self-serving investing behavior in Congress have been misplaced.")


While Montier makes a good (and unoriginal) point, I'm not convinced by his argument.

The first example: IBM and JnJ are in wildly different industries, competing in different markets against different competitors employing vastly different strategies. To use an arbitrary time period (who is to say IBM’s returns 10 years from now won’t trounce JnJ’s), and employ a metric (shareholder returns) that is often out of whack with reality (as Montier himself would acknowledge) isn’t persuasive enough for me.

The second macro example of comparing returns between two totally different time periods also isn't exactly apples to apples either. And also completely ignores the effects of hundreds of other potentially significant factors (interest rates, gdp levels, global trade etc)

This article seems to be a strong case of confirmation bias on his part. Ironical given that he's written a popular book on behavioral investing. (And yes this comment can also be viewed as suffering from a similar bias)

Yes SVM has pitfalls, yes focusing on the customer should be a high priority, however the agency problems Montier describes (management extracting undue value) are solved by neither.

Borrowing from churchill(?) — SVM might be the dumbest idea in how we organize our public markets, except for all the others.


year over year comparison


Declining profitabilities caused by increased competition. What market risk are the scalp-style of hft strategies (not all hft's are scalping) taking ? If they can cancel orders at abandon and make pennies if they win the race (against other hft's), but can simply x out of their order if the price doesnt go their way is as close to a riskless profit as it gets.

virtu's prospectus as a case in point. https://www.sec.gov/Archives/edgar/data/1592386/000104746914...


There is still risk. Even if you never lose money on a trade, your firm can lose money. You're paying fixed costs such as colocation. It's conceivable that all your trades are profitable, yet the sum of all those profits is lower than your fixed costs.

That becomes more likely for any given firm as the competition increases. Spreads get smaller; there's more competition for any given trading opportunity. For each firm, that can mean declining profits per trade and declining numbers of trades made. When the product of those two numbers gets too low, you're in the red.


Or you can blow up like Knight.


Knight had test code that got flipped into production.

Worse, they ignored many alarms as the company was sinking.


> Knight had test code that got flipped into production.

This is not correct. Read the SEC report on the incident if you have time, it is pretty in depth: http://www.sec.gov/litigation/admin/2013/34-70694.pdf

The short-version is that they re-used a parameter from an old feature and one of the production machines was not updated so the re-used parameter re-activated the old feature instead of the new one. Furthermore, A refactoring of the code had left the old feature on the wrong side of the share accounting code so the system was not keeping track of the orders it was putting out.


Thanks for that.

But still it was not any kind of market or trading risk that blew them up--just a litany of control failures and bad code.


Manoj Narang of Tradeworx has stated their average holding time is up to 10 minutes. Is he taking risk?



I know of one HFT firm whose hold times, averaged out over a year, came to Zero. This firm accounted for a significant fraction of all stocks traded.


Did Knight take risk?


I am not referring to Knight.

[Edit] I am referring to another firm; it seems if you are in the trading business, you are taking risk. This certainly has multiple meanings. You can measure risk against a position you hold relative to holding nothing. If you are a Market Maker HFT, then you risk the market collapsing out from under you when you are legally obligated to stay in.


'Average' holding times don't help understand the issue. You could have one position that was a long-term bet

edit: I did not imply that none of the hft strategies were taking market risk. The ones that scalp certainly seem to.


This is the second time you've used the word "scalp", as if all liquidity on the public markets for the last century weren't funded by "scalping".

In the absence of "scalping", trading in stocks works like trading in houses. There are lots of buyers. There are lots of sellers. In the majority of cases, they disagree materially on the correct price. Therefore, it (a) takes forever to enter or exit a position, and (b) often forces people to accept terribly unfavorable pricing.

The "scalp" market makers take is the market price for always having a counterparty willing to trade with you at a price near the true market value of the trading instrument.

If you want the markets to work more like the real estate market, you can do that: place limit orders. The fact that market orders carry a premium price isn't a subtle detail of the market; it's trading 101.

All things being equal, you want the "scalp" to be as thin as possible. The wider the spread, the closer the scalping blade comes to the skull. Liquidity has a price, and investors want that price to be as low as possible.

So now, an exercise for you: at the height of HFT profit-taking, was the price of liquidity (a) lower or (b) higher than it was during the 1990s?


Though houses also have the additional complication that they're not (at all) fungible.


I'm going to go with (a) lower.



Its the bane of quarterly capitalism - once public, management focus is diverted to managing earnings and increased amount of transparency needs to be provided for the company's internal operations.

Companies would prefer to stay private (and away from the limelight) while they're still figuring out product/market fit etc


You really should find product-market fit before you raise any money at all. However, it seems Uber has found it.


Option 1 if you're working 10 plus hours a day including being on call 24/7. See if you can get a contractor so you can try for a few months before deciding which way to go (Will be harder to get CTO type person for a shorter duration).

This gives you some room to think about the business and where you should be prioritizing your efforts (sales, product, marketing, biz-dev).


I actually see this as an opportunity for Google to experiment with customer support. Seems that a lot of people are willing to pay for some basic level of support - so why not test that hypothesis ?

Setup a separate Customer Support organization for specific services. Staff with lower-skilled folks from cheaper locations (since cost seems to be such a huge concern). So a $X yearly plan entitles you to Y number of queries and gets you a response from customer support in N days.

For example a $20,000 per year engineer (very reasonable in lower cost locations) would require 2000 users paying 10 per year to breakeven.

The question is why would google even bother ?


Funny, I wrote a note explaining my process a couple of days ago..

1. What is the business, do I understand it? (If no, then less likely to buy)

2. Numbers (revenues, earnings, margins) over the last 5 years atleast

3. Piotroski score -- more of a shortcut to quickly assess quality of the business

4. Annual price returns -- more to understand how the stock has been doing over the years and over the last few months

5. Liquidity/debt ratios -- this is very industry driven, some sectors like tech have very low debt levels others have higher

6. Comparables -- steps 2 to 5 for atleast one or two direct competitors. Plus ratios ofcourse (PE,Price to Book, EV/EBITDA etc)

7. A very quick dcf -- (I've been building a tool that helps me do this quickly)

If I've done all these steps (takes me about 30 - 40 minutes to do these steps), and I like the company then read the annual report (at-least twice).

Often takes me a couple of weeks if not more to decide to initiate a long position.

blog post -- http://equisear.ch/blog/2013/04/the-first-30-minutes-looking...

I've been building tools that help me do this, its not ready yet but gets me there most of the way-- http://equisear.ch


That was atleast 9 years ago. http://en.wikipedia.org/wiki/Michael_Kelly_(editor)


Exactly. Ad revenue of newspapers slipped over 50% during that time. The whole market got eaten up and destroyed, worse than the music industry could've ever dreamed.

There is still a great bunch of journalism out there, like Vice (who actually did the original reporting) and then there are folks like this guy who wishes for days of yore. The Atlantic puts out plenty of great content from great writers who get little cash for their efforts.

The market changed drastically on this guy and he hopes he can get more PR from this free blog post than a free byline on theatlantic.com

Good luck to him.


I find myself in a very similar situation (married/mortgage/kid) building product fulltime. I intend to go on till I get some evidence of traction before I see any investors.

It sounds like your product is some sort of a marketplace where one side (sellers/businesses) will pay and the other side will come in free. If so that's one of the oldest games in town. And showing an angel that sellers will pay to sell/promote their product on your platform is not going to generate much excitement. (Sellers ALWAYS want to sell and will pay for customers if they see a particular system/channel working).

Your challenge will be to build up the user base quickly. Identify a segment (your customer's customer's perhaps) and offer some sort of an exclusive (you will have to pay for that discount most probably unless your sellers are willing to chip in)

If you do want to go the angel route immediately some options are > angel.co > local tech meetups > cofounders lab (I've found good entrepreneurs there)

Happy to compare notes, drop me a line at mayukhm@gmail.com



It is strangely comforting to know there are others out there in the same boat.

>> It sounds like your product is some sort of a marketplace where one side (sellers/businesses) will pay and the other side will come in free.

Spot on.

>> showing an angel that sellers will pay to sell/promote their product on your platform is not going to generate much excitement.

I was thinking along the same lines. The only thing that it may do is prove to them an initiative. On the flipside, it'll slow down adoption significantly.

>> Your challenge will be to build up the user base quickly.

Agreed. This is what is really motivating my interest in finding an investor now. In order for me to build up both customer bases, I'm going to need to give away the service to the restaurants and bars (paying customers) for a duration of time (I'm thinking 3 - 6 months). Once I get enough of them enrolled, I'll use gorilla marketing, social networks, and simple word of mouth to spread it amongst the buyers.

The problem I have is that pushes me out 3 or 6 months before I see any sort of revenue. On top of that, the cost of getting both user groups goes up as I attempt to expand to other nearby cities.

Thanks for all of the points man. I sent you an invite on gchat. Hit me up if you're ever in the mood to compare notes or need a wall to bounce ideas off of.



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