Anatomy of market participants
Paul Samuelson once identified four classes of stock market players:
1. the buy and hold investors, who would do well when economy cycles are on their back
2. "the hour-to-hour, day-to-day ticker watchers", who "mostly make money only for their brokers"
3. the market timers who take advantage of the changing moods of the investing public, and sometimes are successful
4. those who study companies closely enough to take advantage of "special situations" of which public investors are not aware. This is the group makes biggest money.
In today's terms, the first group is still called buy-and-hold investors. The second can be called day-traders, which have evolved from what Samuelson said to more sophisticated groups: high frequency traders and algorithm traders. They trade hundreds of thousands times a day and make money from each trade, even tiny. The accumulated wealth is huge. High frequency traders and algorithm traders are not exclusive. These traders could be very profitable, unlike Samuelson labelled them. The third group includes all kinds of funds, mutual funds and hedge funds. The last group is devoted to merger and acquisition (M&A), which is indeed a stable profit generator.
He himself treated his group (he did invest in commodities) as a new group that use economics and probability theory to make money. So strictly speaking, he was one of the quants. He was also insightful and straight on practical market players' role. When he and his colleagues at MIT's Sloan business school traded commodities back in 1950s, he admitted that they didn't go broke was because the father of one of them, who was a commodity broker, stopped them from doing something craziest. One of his former students, Paul Cootner who focused on fundamental analysis, impressed him by his research between future price spreads and fundamental factors. He agreed in one paper that this fundamental analysis did work.
The identification was done some years ago from now. And it seems the groups didn't get much larger. The clear winner of these groups is the M&A group (had not had the 2008 crisis, the buy-and-hold may be close too).
1. the buy and hold investors, who would do well when economy cycles are on their back
2. "the hour-to-hour, day-to-day ticker watchers", who "mostly make money only for their brokers"
3. the market timers who take advantage of the changing moods of the investing public, and sometimes are successful
4. those who study companies closely enough to take advantage of "special situations" of which public investors are not aware. This is the group makes biggest money.
In today's terms, the first group is still called buy-and-hold investors. The second can be called day-traders, which have evolved from what Samuelson said to more sophisticated groups: high frequency traders and algorithm traders. They trade hundreds of thousands times a day and make money from each trade, even tiny. The accumulated wealth is huge. High frequency traders and algorithm traders are not exclusive. These traders could be very profitable, unlike Samuelson labelled them. The third group includes all kinds of funds, mutual funds and hedge funds. The last group is devoted to merger and acquisition (M&A), which is indeed a stable profit generator.
He himself treated his group (he did invest in commodities) as a new group that use economics and probability theory to make money. So strictly speaking, he was one of the quants. He was also insightful and straight on practical market players' role. When he and his colleagues at MIT's Sloan business school traded commodities back in 1950s, he admitted that they didn't go broke was because the father of one of them, who was a commodity broker, stopped them from doing something craziest. One of his former students, Paul Cootner who focused on fundamental analysis, impressed him by his research between future price spreads and fundamental factors. He agreed in one paper that this fundamental analysis did work.
The identification was done some years ago from now. And it seems the groups didn't get much larger. The clear winner of these groups is the M&A group (had not had the 2008 crisis, the buy-and-hold may be close too).
posted by Intl.investment.services at
8:54 AM
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