Tuesday, July 3, 2012

Macro dominates

This CNBC story says risk appetite and macro trends are so dominating markets there may be no future in covering individual stocks.

With markets continuing to move in lockstep to every headline out of Europe, China or the Fed, the days of individual stock analysts may finally be numbered. ..
To be sure, many investors said that markets can't move forever on the whims of central banks. At some point in the future, individual stock picking and research is bound to matter again.The question is, how long will that take? Investment banks and boutique firms can't keep low-margin research businesses going forever, especially with the proliferation of free content on the Internet.

This has been a trend for a while, of course, since the Spitzer research settlement. What is still surprising is that the same thing is not happening more actively to quants. After all, most quant funds turned in horrific performance during 2008-10.

The field is effectively commoditized. There may be room for one or two players with superior quant techniques. But it's hard to see how most players have any sustainable advantage running algorithms and mining high frequency data or econometric series. If everyone has physics PhDs playing with Mathematica, then there's no extra edge, and no point to having thousands of people do it. The market becomes completely efficient in that respect.



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