Alphacution Feed

It was a recent father-son (and dog) road trip. Several hours in the car, on our way to support daughter / sister, Emma, at her final regatta of the season. Head of the Hooch in Chattanooga, Tennessee. And, an opportunity for some undistracted conversation. Among the many topics was our ongoing debate about how to trade Tesla (TSLA). Eddie has proven himself to be fairly decent scalper of this volatile name, so I usually ask how he is positioned and the levels he thinks are meaningful. Anyway, it turns out, he is trading on the Robinhood platform - no more than a few shares at a time - and paying zero commissions which, of course, improves his net profitability. This is the main attraction on top of the fact that he can toggle between trading stocks, playing video games, watching YouTube, Instagramming with his friends and listening to music all on the same device. (No wonder he is always wiped out!) So, this got me to thinking about some of [...]

“Study the science of art. Study the art of science. Develop your senses — especially learn how to see. Realize that everything connects to everything else.” — Leonardo Da Vinci (~1500) It has been a little while - since here - that we updated our analysis on the market making and high-speed trading strategy end of the playing field. And, during that time it came to our attention that our friends at Flow Traders N.V. (FT) had begun to feel a little left out of the fun. After all, it seemed we had inadvertently given that impression by showcasing our thoughts on Virtu's progress and outlook as if it were the only remaining stand-alone public market making firm - now that the KCG acquisition had closed. (For those of you who are just joining us, you might refresh the thread on prior work around this topic, most notably, here...) Personally, I don't think Virtu will mind sharing a bit of the spotlight. With the Panthers near the basement of the NHL's Atlantic division, [...]

“Study the science of art. Study the art of science. Develop your senses — especially learn how to see. Realize that everything connects to everything else.” — Leonardo Da Vinci Da Vinci is now known to have been able to "see things" that he had the tools to make real in the period, and see some that he couldn't. For those visions he couldn't bring into reality, that disconnect - I have concluded - was mainly a function of the underlying pace of innovation. Da Vinci simply would not live long enough for the pace of certain innovations to intersect with his lifespan. Today, the pace of innovation is so severe, it's difficult to imagine what might not intersect with our own lifespans. Food for thought...  

“Study the science of art. Study the art of science. Develop your senses — especially learn how to see. Realize that everything connects to everything else.” — Leonardo Da Vinci (~1500) "Hedge funds — there are too many of them and most of them are lousy." - Stevie Cohen (2016) The highest Sharpe Ratios - which, for the uninitiated, is a measure of risk-adjusted returns for specific strategies and financial portfolios - now live behind a declining roster of gilded gates. And the impacts of this "privatization of alpha" are enormous for the asset management industry and its stakeholders. Alphacution expects additional consolidation, concentration, re-engineering, disruption, disintermediation, and exits to be on the menu for this group along the road ahead. Here's the setup: Continuing on the overarching and transformational theme for how information technology impacts the constellations of strategies, players and markets in the financial universe, Alphacution has been leveraging its growing model library to focus on the development of a comprehensive asset management ecosystem "map" to demonstrate, along with many other [...]

Jensen Huang, CEO, Nvidia: "Software is eating the world, but AI is going to eat software..." One of the most fascinating aspects of innovation is its resistance to scaling. At least this is one observer's interpretation. Those trying to innovate at increasing scale - like, inside a large enterprise - might prefer to describe it as frustrating, to say the least. The rabid interest in startups - small groups of visionaries and entrepreneurs that are able to deliver radical levels of change to the provision of solutions for unmet market needs - is a reaction to this resistance. During the post-global financial crisis (GFC) hangover, it became vogue for large banks to establish externalized "innovation laboratories" to protect relevant and critical innovations from the harsh bureaucracies and incumbent politics inherent to large enterprises. Best case, they keep the proximity of innovation close; worst case, the messaging serves as a marketing tool. Of course, #fintech innovation has been a raging hotbed of innovation for the past few years, and many expect [...]

If you have bought into our arguments that the capacity of alpha is finite and that the leading managers of automated trading methods can achieve "winner-take-all" performance characteristics in the sources of alpha that they target, then it stands to reason that the causes for where assets are concentrating and which funds are closing are related. Without even looking at track records, these two facts lead to the conclusion that systematic strategies are more consistent than, and therefore, winning a battle over allocations to traditional, fundamentally-oriented and "manual" strategies in modern markets. Something amazing - and, potentially terrifying - is happening at the crossroad of asset management and global markets. The drumbeat of clues in support of this theme is increasing and those observers with keen insights into market dynamics are beginning to notice. Alphacution has played a small role in giving voice and illustration to this theme by placing a bow around a unique interpretation of unprecedented market phenomena worth paying attention to, most relevantly to this part of [...]