What's the Next Hot Financial Sector/Product?
There is always a hot, desirable field in finance. Asset Management providing ETFs, or passive investing is hot right now. Mortgage backed securities were popular in the '00s before the recession. VCs and tech stocks were the thing in the '90s, before the dot-com bubble bursted. Junk bonds grew a lot and were especially lucrative in the '80s. Meanwhile, algorithm trading and hedge funds have also peaked before the recession and are past their prime.
Passive investing might be peaking, due to an arguably overvalued stock market. What is the next big thing? Is it emerging market equity, or real estate? Do cryptocurrencies have room to grow? Finally, Everyone loves private equity, but the market seems to be becoming saturated with PE funds. So how does the rise and fall phenomena of other sectors and products apply to PE?
Next big thing in banking (Originally Posted: 04/09/2010)
I am in the process of writing my honor's thesis. My goal is to try forecast some potential changes in banking in the near future. In order to do this, I needed to first identify some of the underlying changes that have previously led to fundamental shifts in the banking industry. Based on my research, i have concluded that fundamental change in banking is usually the result of one or a combination of the following factors, which include macro and micro economic changes, government legislation, and technological advancement. For example, mortgage-backed securities came about due to micro economic factor, inflation. Inflation severely hurt saving & loans companies, who as a result had to sell old mortgages to investors at a loss. Furthering the profitably of m-b securities was legislation from the Reagan admin that deregulated the S&L industry. From a micro p.o.v, a rise in home buying satisfied the increasing demand for investors to gain exposure to this market. In regards to technology, i think it goes without saying that the derivatives market was a natural implication of real-time pricing available from the web as well as the advent of computer programs capable of doing highly sophisticated financial models. Obviously these are just a few of many examples.
In looking towards the future, I think that more regulation and greater technology might hurt the advisory part of the banking industry. Greater regulation is going to mean that companies will have to have more accountability in regards to their financial risks, leading to an increase in internal audits. Given the potential financial reward and exponential increases in computing power, it is reasonable to assume that a software will be developed that automizes the valuation process. Essentially, this would involve creating a computer model that inputs data from audits and determines value based on an algorithm that is engineered to adjust with real time changes in the market and the company. If this type of software becomes a reality, then why would companies pay the huge fee's to banks to broker deals? I think banks command such high fees because of the opaque nature of their business. However, I think this opacity diminishes as financial records become more transparent and software becomes more "intelligent." As a result, I think companies might be less inclined to pay the premium that comes with hiring a brand name firm. I think there will be rise in large discount firms as well as more companies willing to do a greater part of their own valuation. However, since raising capital is such an important aspect of advisory, I don't think the big name firms, and their unrivaled access to capital, will significantly decline as result. But, I do think that they will have to lower their fees to adjust to the greater amount of competition that could arise from said changes.
Anyway, that is just my opinion. I am interested to see what other people think. If they agree or if they think that this is just unsubstantiated bullshit from somebody with no industry experience.
Hmm you're ignoring the relationship-driven part of the business though. Nobody ever does a deal because "the model says its good", that's just one very small indicator that maybe it's worth considering.
oh my fuching GOD, this is the stupidest post I've ever read
And believe me, I've read some incredibly STUPID posts from people on here
For fuchs sake man, do you REALLY think M&A valuations are going to be driven by automated models
This is truly ONE thing that will never happen
There is just TOO much subjectivity in the process
Not even 10 bankers or sellers or buyers or PE firms with the same information analyzing it with a thousand supercomputers till the end of time would come up with the same valuation or even close. The dispersion would be extremely wide overall and the point of the M&A process with bankers is to get you to the to of the range and above. "In the range" is easy, and you can use comps to do that.
My suggestion would be to take your thesis paper and literally burn it and start over from scratch. Also some of your amazing theories that banking will be changed by micro / macro changes, regulatory and technology is truly novel. You ought to win a nobel prize for that one. Not!
(Note - I'm just being harsh cuz it is fun, not to be mean or act self righteous, although I am the best here)
I don't think they are going to become totally automated. read the last line of my statement you fucking dumb p.o.s. I still think big banks will rule and their expertise will be in demand, but I think they are going to have to lower their fees. I think that technology will give more leverage to companies, which will drive down their prices. Look what happened when Google decided to do a dutch auction for their IPO. Stupid Cocksmokers like yourself where saying that there was no way a company that large could do it, and by trying to cheap out on the investment banks their going to loose their ass. Well what happened? Nothing, they did just fine and managed to only pay the i-bank 2.8% instead of the usual 5-10%. Google claimed it was able to do this because of a software that allowed them to better gage market demand. My point is that if you believe in Moore's law then you know that the capacity of technology is endless. And it is certainly probable that a computer program might be able to do a lot of the bullshit monkey work that currently goes on in i-banking. There will still be a need, as I said earlier, for expertise, but like with anything that becomes more automated the price will go down. Look at stockbrokers over the last 20 years. They are still around even with discount online brokerages, but they have had to change to compete. They do more tasks, hence the term financial planner and not broker, and they charge less fees than they did 20 years ago.
" Also some of your amazing theories that banking will be changed by micro / macro changes, regulatory and technology is truly novel. You ought to win a nobel prize for that one." Of course is not going to be entirely novel, I'm a senior in college, not a phd student. Anal cunts like you are highly educated and intelligent, but so externally motivated that you'll never have the balls to take a risk. My guess is that you are probably an associate at some big firm, which is why your so goddam arrogant.. And another guess is that you got there by taking it in the ass from high school through grad school, which is why your so dam bitter and feel the need to come on here and let off steam. You'll never fail because you will never need to, you just maintain the status quo and grab you ankles tell you reach the top. I on other hand have failed and will continue to fail because i don't like taking it in the ass. I may be totally wrong on this, but i would rather be wrong then like the other students who played it safe and regurgitated a bunch of HBR articles until they reached 60 pages. Guys like you play by the rules, guys like me fail until we eventually succeed and then we get to make the rules.
Fuckface, when you said: "Anyway, that is just my opinion. I am interested to see what other people think. If they agree or if they think that this is just unsubstantiated bullshit from somebody with no industry experience." Did you actually mean that or are you just fucking retarded. Your assertions are still worthless. Banks still charge SEVEN PERCENT on typical IPOs, not 5-10% you freaking MORON. YOU have NO industry experience. I DO. So, STFU. I wish a computer could figure out when a moron is typing and shock them, as your computer would short circuit upon anything you type. Good luck with your thesis and now you should go shred it immediately before your professor fails you miserably.
BBMMBoutique, no offense, but you are a dumb fuck. I don't think you are even out of college, let alone have industry experience.
A couple of issues about using a computer model that is based on an algorithm that uses inputs such as audits and market information is the effect of the choice of parameters within the algorithm, such as: the actual extent of the disclosure (for/of the audit/target company's "private information"); and the fact that the market information captures predominantly noise and precious little by way of a true indication of the company's actual value;
This in mind, it is highly unlikely that corporates would end up choosing "discount firms" or altogether eliminating banks because they ultimately still need the corporate advisory services that the banks provide, since these are the firms that have more information, or "experience" which is worth paying a premium for. Consider this, if you had a brain tumour, wouldn't you choose the best brain surgeon you could afford over the whiz bang new technology that hasn't been in place for the last few decades?
Also, the changes in regulation (though admittedly I do live in Australia, so forgive me for generalising here) won't render these firms obsolete because increased transparency does not equate to no opacity. Also, the regulatory process is usually characterised by lobbying by these large body corporates or banks, so exactly how much the regulation will change is unclear. Case in point: Australia, Canada, the UK and other countries have adopted completely or are harmonising their accounting regulation and standards to that of the IASB. The US Government has not even begun considering a change, most probably due to its effect on the taxation revenue. Now this is relevant because it shows that there is already a resistance to change present. This mindset may have been affected by the GFC, but I do not believe it would be so substantial a shift.
It is highly improbable that increased transparency and audit information (if available) will help this model of yours. Look up the Efficient Markets Hypothesis and Black's Argument (Informational Efficiency and Market Dynamics).
Now I guess I should add that these are all theoretical issues, because I do not have industry experience (yet). This should not really be an issue seeing as this is an Honours thesis, so I do hope it is still helpful.
*edit: Also, in regards to the belief that "the capacity for technology is endless...", well I don't dispute that, but models based on algorithms cannot capture information that the designers have not thought to create parameters for. Check out: http://www.theaustralian.com.au/news/opinion/smart-thinking-does-not-al… There simply is little to no reason an IB would lower its fees because it has the expertise and resources that a "discount firm" lacks. That and the whole idea of "you get what you pay for".
Next big thing in banking - Derivatives actually regulated by people who understand them?
Yea dude, you suck.
The Next Hot Financial Product (Originally Posted: 07/16/2011)
Walking by a novelty store the other day got me thinking about financial products. For those who remember the craze in question, you won’t be surprised that I think Tickle Me Elmo is a great way to start a conversation about the future of financial products and vehicles.
It was the 1996 Christmas season, if memory serves correctly. Ross Perot had come awfully close to making American politics a little more than The Bud Bowl and I was utilizing a caveman version of electronic trading to cash in on a fad the likes of The Tulip Bubble. For some undefined reason and still inexplicable externality, a red doll which giggled when you punched its stomach was retailing for upwards of $800 for the holiday season. In all the years that have passed I have not met a PhD or top prop trader that could explain why. The easy argument would have been a supply shortage, but the truth was far less clear. All I know is that before things were all said and done many an enterprising soul had made a killing the likes of which was easily possible back then.
In comparison to the tech bubble, however, TME was a drop in the ocean. The bubble was still puffing up and twits of all shapes and sizes were making millions at a clip. Though times have changed one thing has not…
There will always be hot as fire products that everyone wants. In the 80’s a wave of M&A swept through Wall Street. As a result the buyout industry became the stuff of legends. Tech stocks in the 90’s. Mortgage backed securities in the 00’s. Commodities today and a slew of products in between.
There is no doubt that the hot prize draws the attention of the masses. Many made mad money, with even more followers going broke riding their coat tails. Without getting into a deep analysis I want to hear what you guys think will be the hot products of tomorrow. ETFs have certainly been the biggest ground gainer over the last decade and I plan to get into more detail about them during the week. I am curious if anyone has any other favorites they want to advocate?
Will M&A come back? Are you a distressed asset bull? Will the Apple Commodore reissue catch the retro fad wave and go for 100X value? Let’s hear it…
My energy fund ;)
haha Can I join? ;)
I'd be interested in hearing some thoughts.
If after Steve Jobs dies Apple creates some limited edition Apple products.
casey anthonys book!
cleantech! its being peddled like crack....
My convertibles for a trio of sizzling IPO's in social media coming out. Nuff' said.
hedge fund strategy ETNs for retail investors
what is going to be the next big thing in trading....??? (Originally Posted: 05/04/2007)
Personally, I believe trading on the basis of high frequency data...any opinions about new instruments/techniques are welcome...
just look at Jim Simons from Renaissance Technologies. The guy is a math phd and his firm employs tons of scientists and stat guys. Their returns are amazing. Modeling and math are the future.
Simons' firm got its start in the mid-80s. since then, we've seen a huge surge in quantitative strategies on wall street and in hedge funds. its not "the future." returns are already not as impressive as they once were
Quant strategies in the broad sense are the present and will be the future (on the basis of what else are you going to trade?event-driven?technical analysis?fundamentals?instinct:)?).... But e.g. in the 90's the hot thing was relative value arbitrage...or as far as instruments are concerned, for example, convertibles were hot. now I guess we are moving more towards algorithmic and high frequency trading...this is what I suggested. As far as rentec is concerned things are quite obscure as to what techniques they employ...i've read somewhere that some of their employees neuroscientists...so they should be using some kind of behavioral finance techniques in conjunction with signal analysis...
neuroscientists, i would wager, are probably for developing trading systems based on neural networks. also, i believe they have hired computational linguists as well.. likely some machine learning going on as well.
hm....but there's also the fact that rentec is trading on CBOT and CBOE directly, and they have set up microphones on the pitch..maybe they can extract some alpha by analyzing who knows what...the traders' screams?
sometimes after a significant silence the whats being traded at the pits have been seen to make a significant gain
Hottest Sectors (Originally Posted: 04/15/2010)
What do you think will be the busiest sectors for M&A in the rest of 2010 and 2011?
NatRes, without a doubt. Already is.
Tech and Retail
Power.
http://www.nytimes.com/2010/04/15/business/15views.html?dbk
Healthcare
I hope you got a clear answer lol.
Studies show that the hottest M&A sector for the next 2 days will be my weiner and your mom's anus.
Very clear lol. Energy seems like it's picking up like crazy now. But, the acquisitions seem to come from tactical shifts on the part of firms (i.e. natural gas --> oil, etc), and do not seem to make up a long term trend. Tech is getting hot too, though.
The Next Big Thing in Finance (Originally Posted: 08/14/2011)
In the 80's, we had LBOs and Junk Bonds. 90's was the tech era. 00's; Mortgage Mayhem.
My question to you guys is - what will be the defining security/craze/technique/Sector of the next ten years?
Corporate Restructuring perhaps?
ETFs
go out and get laid while you're still in high school dude
Agriculture
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