“Buying stocks used to be about long-term value, doing your research and finding the company that you thought had good prospects. Maybe it had a product that you liked the look of, or perhaps a solid management team. Increasingly such real value is becoming irrelevant. The contest is now between the machines — and they’re playing games with real businesses and real people.”
Hurrying Into the Next Panic? - Paul Wilmott
Wilmott’s article on high-frequency trading focuses on its negatives (to no surprise) - the risk of too many people pursuing the same strategy, machines altering markets in unconventional and seemingly dangerous ways, etc. However, this has been the trend for a long while now. Many hedge-funds out there have increasingly relied on new proprietary technology, super-computers, and fancy algorithms (see D. E. Shaw). This is the name of the game. If markets (at least short-term) can be statistically predicted, someone is going to find a way to take advantage of it. Is there something wrong with that? It definitely takes the human element out of trading. Why trust someone on the floor when you can have lightspeed transactions calculated by a computer looking thousands of moves down the line? I think Wilmott’s insight as to why this is detrimental is right to a degree. Traders will soon find their job descriptions quickly changing if high-frequency algorithms pick up (and they will). However, in terms of long term investment, Wilmott over-exaggerates. In that game, humans are irreplaceable. There is no contest between machines - it all comes down to management, solid business models, and an intuition that in the long-run you will come out on top.
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