Tuesday, November 22, 2016

The Efficacy of Investment Revisted


Ordinary folks like myself wouldn't be aware of this, but most savvy investors certainly are; The quant investment firm Medallion has beat not only every other investment fund out there, it has seemingly defied the very notion of market unpredictability. You need only look at the returns for this fund for the last twenty eight years to see just how remarkable this winning streak has been.

And just to review for the rest of us, a quant fund refers to an investment house that uses various arrangements of computers, and computer algorithms, to crunch as much data as possible in order to make market picks. In the case of Medallion, a fund open only to the grand list of big brains that run it, some very high level of statistical analysis has been used to find correlations between all the things that are happening around the world, and that they can then gather into these high end computers, with the movement of everything to do with supply, demand and prices.

On the one hand here, you have to congratulate them for being so over the top successful at this. I mean seriously, everybody else must be just drooling at the prospect that such returns are possible. On the other hand, though, you have to wonder at the notion that so much money can be made simply by investing in some computers, and a few really brilliant mathematicians, statisticians and coders. And all they are doing here is just making money on what various information flows say will happen to certain prices, and then placing bets on the items themselves, or the companies doing the selling.

What is salient here is that nowhere in this process does the economy as a whole benefit all that much; especially as it relates to better products, or better processes, that would make our economy stronger in the long run. More counters may be put into the system generally, but that benefits only a few. As, indeed, during the great recession, these folks received their biggest return ever.

It is, of course, tricky to even begin talking about investment efficacy when it comes to the real bottom line of Capitalism; which is only to make money by profiting however you can in the exchanges of goods or services. Which is, certainly, the real problem here. One might change the socially equitable trade off here if such questionable (efficacy wise) investments were taxed at a much higher rate, but good luck in even getting that started, much less than keeping it in place.

At the end of the day all we are really talking about here is the importance of information. That some people can take advantage of getting more of it, and having more resources to analyze it, not to mention more paid time to do so, only serves to emphasize the power imbalance generated when the rest of us have so little access, or the time to make use of it. And thus do we see another illustration of why technology has made Capitalism obsolete; especially if you value Democracy as way to govern a society by.


Inside a Moneymaking Machine Like No Other

The Medallion Fund, an employees-only offering for the quants at Renaissance Technologies, is the blackest box in all of finance.



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