HF analyst on Reddit supporting OWS
This is a self-post, so I'm not trying to karma-whore or anything. I have a message I want to share with anyone who's interested.
I'm writing this in hopes that the OWS movement can have a better understanding of the hedge fund industry and the financial markets. With OWS being the zeitgeist of current politics, I think it's important to know how exactly the hedge funds, along with the financial markets are destroying the 99%.
Hedge funds. These guys are basically the vehicles of choice for ultra-rich people to get into the financial markets, besides family offices and private wealth managers. What are hedge funds? They are funds that have a 1-5 million deposit minimum, cater to the mega-rich, and can invest in anything without regulatory restrictions, use leverage to pump up their exposure by 15x, and pretty much eat up a vast majority of the industry's profits.
These guys invest in EVERYTHING. Instruments you've heard of - stocks, bonds, forwards, futures, currencies, and instruments that you, me, or anyone else have never even heard of, much less know anything about: commodity future swaptions, FRA/OIS swaps, CLOs, exotic future options, p-notes, index/commodity/equity exposures, and a huge array of OTC (over-the-counter) instruments that no regular investor would ever have access to.
Why I bring this up: the financial markets are rigged. 99% of the investing public has access to services such as basic brokerages, 401k/IRA's, mutual funds, pension plans, etc. Some of these services, especially pension funds, will invest into hedge funds, who take an additional 2 and 20 (meaning 2% of assets plus 20% of capital gains).
What this means is that if you go any of the traditional retail routes, you are utterly screwed facing off against the hedge funds.
First, you are paying exorbitant fees. Commissions on every stock trade. Mutual fund managers taking a cut - an annual % cut, as well as a % per profit cut. If these managers (i.e. pension plans) invest in another fund, that fund is also taking another % cut. You're down 2% the minute you invest your money.
Next, if you're doing the investing yourself, you're paying ridiculous spreads. The bid/ask spread of a stock will cause you to be down another 2-3% the minute you buy the stock. For example, if you're buying a share of company at $4.25, you can sell back at only $4.15.
Furthermore, you have absolutely no chance in terms of access to the best services. Hedge funds have a direct line to investment bank's institutional brokerage teams - these are the guys that spend day and night sucking up to hedge funds, trying to get them the best deals at the cheapest rates. This means that while you're buying stocks and bonds, hedge funds are getting special rights, warrants, sweetheart deals, private placement deals, in-the-money options, bigger discounts on bonds, and much better bulk commission rates and lower spreads on stocks. If you're paying 4.25$ for a 4.15$ stock, they are paying something like 4.16$. And they are eating alive your profits because when the stock goes up to $4.30, they can activate another warrant to purchase 20m shares at $4.25, diluting the value of your shares.
Next, you lack information and exposure. You have no idea what is going on in the market besides what you see on the news - while hedge funds have analysts working around the clock and a bunch of service providers who give minute-by-minute analysis of their portfolio opportunities and weaknesses in all markets with exposures to nearly everything. Meaning, if there is an opportunity in the real estate market (i.e. legislation), it might take you weeks to get in - hedge funds will have gotten in the minute the legislation was passed. Furthermore, when IPOs come out for companies, hedge funds get top billing on the primary market shares - which means investment banks are selling directly to them. Once the secondary market becomes available, hedge funds are up 15-20% on these investments, sometimes within hours.
Finally, you have no capital compared to these hedge funds. The people who invest in these hedge funds are not just the 1%, they are the 0.1%. These are the guys with 500million dollar bank accounts and the ability to do whatever the fuck they want. Hedge funds know this, and they invest without having to care about whether their clients can pay the rent or send their kids to college. All of that is irrelevant. Their sole purpose is to earn money, not to mitigate risk.
What does this all mean? It means the hedge fund industry is making a gigantic proportion of the profits. The top .1% is earning nearly half of the profits in the industry, through not just hedge funds, but other similar vehicles.
The finance industry is a complete scam, designed to funnel money from the 99% investing public into the hands of the top .1%. Sure, some of you will make good money, but stastically, the rest of us will lose, and who is feeding off us? Hedge funds, and the .1%. You have better odds going to a casino and playing slots, the worst-paying game in the house, but still better than the stock market.
Also, the government is in bed with the financial industry. Tax loopholes give hedge funds and other top players the ability to write off losses and not pay taxes on gains for years at a time. For income they derive from the hedge fund (profits), they pay only 15%, rather than the 35% income tax charged to most people earning 80k and above. Meanwhile, you have to pay taxes for not just your own income but also capital gains.
The worst part by far is that the government "encourages" you to put your money into your 401k through 'tax exemptions', which basically puts your money with the lowest tier of the financial industry - pension funds, retail wealth managers, and retail asset managers. These guys have shit strategies like long-only or domestic equity (which means they only invest in American stocks), and have nowhere near the capability and reach of hedge funds. These guys are even more likely to lose your money than you are, and even worse is they will take a 2.35% cut while doing so. And you get penalized when you try to take your money out early. How f***ed up is that.
In other words, if you aren't in the .1%, you have no access to the derivatives markets, you have no access to the special deals that hedge funds and other wealthy investors get, and you have no access to the resources, information, strategic services, tax exemptions, and capital that the top .1% is getting.
If you have any questions about what some of the concepts above mean, ask and I will try my best to answer. I'm a first-year analyst on wall street, and based on what I see day in and day out, I support the OWS movement 100%.
tl;dr: The finance industry funnels money from the masses to the ultra rich, through hedge funds which dominate all of the financial markets.
Wow. He knows so much that isn't so. He must be a very dumb first year analyst.
can you pick out some points of his and explain
Those that are blindly against the protests most likely feel threatened by them and it's unfornuate that they didn't have that signififcant impact I was hoping for.
ummm...thanks?
Everyone should have a little place in their hearts to sympathize with some of the OWS concerns.
There is an income-inequality gap developing in this country and I'm not talking about 22 year-old investment bankers making 120k compared to experienced public-school teachers making 50k a year. I'm talking more about the CEO who makes 400x more than a lower-level employee who actually plays a relevant role in the company. There is also a problem with the current bonus structure as it is more dependent on short-term profits, thereby increasing the pursuit of tail-risk (especially by executives and traders). In some Swiss banks bonuses are locked and paid in installments... if a company goes belly-up then part of bonuses have to be returned. Lastly, American companies do a poor job of handling lay-offs... they fire lower-level employees but the top executives retain their salaries. Just like John Mack did, CEOs and upper management should lower their salaries if they're laying off thousands of people. Company morale is not taken seriously in the US.
I'm all for tax cuts but when it comes to the uber-wealthy and corporations I think the government should somewhat mandate (probably not the right word) that their capital should be invested more into the real economy. If individuals just use that capital to invest in stocks in the secondary market what good does that rebate do? Individuals should also be deterred from allocating too much capital abroad in chase of yield. In regards to corporations the problem is that major fortune 500 companies are just sitting on a shitload of cash, using the guise of "uncertainty", and barely hiring anyone. Individuals/private companies do a much better job of allocating capital instead of the government but if their going to use those tax rebates for counterproductive purposes then they probably don't deserve one in the first place.
Government is even more corrupt. Government needs to shrink and allow people to keep more of the money they earn. Businesses are free to pay CEO's whatever they want. No one but the shareholders should have a say. Income inequality is not an issue. Someones salary has no bearing on me.
If I get a raise tomorrow, how does that change someones life? It doesn't. It makes the jealous. A country that punished the strong for the sake of the weak is a country that is doomed to fail. It doesn't make a country more competitive, just makes everyone less successful.
Raise the poor up, don't bring the rich down.
Idk man, some CEO compensation packages are too excessive. You can't justify to me why Stanley O'Neal left with a golden parachute worth $161,000,000 considering he destroyed Merrill Lynch (I was an intern there at the time). Markets make mistakes in pricing/valuation, labor market is no different. To the point about shareholders, don't underestimate the power of the board of directors. There is certainly a conflict of interest as fortune 500 boards are nothing more than an executive network club where everyone scratches each others backs.
Regarding governments, it's difficult to answer. I'm convinced that Scandinavian-country governments are legitimacy concerned about the welfare of their citizens and that the excessive taxes may be beneficial to society. Then again there are governments in Africa that just pillage their citizens' wealth. Perhaps the US is in the middle. I'm actually quite conservative when it comes to fiscal/economic issues but there are major exceptions such as supporting a government healthcare that competes against the private sector (won't get into it). For one, it is impossible for a group of planners to manage a population of 300M. There is also a cultural issue where people are willing free-riders and have no shame in taking advantage of the system. I hated the government bailouts but there is room for regulation (essentially make OTC markets more transparent). These are complicated issues and we can't just tout FOX/MSNBC talking points. People in this country are too polarized.
CEO's don't play a relevant role?
http://www.thestreet.com/story/11267127/1/the-debt-we-owe-to-our-ceos.h…
CEO's don't play a relevant role?
http://www.thestreet.com/story/11267127/1/the-debt-we-owe-to-our-ceos.h…]
I apologize. That was poorly worded.... long day.
I meant that the lower-level people get paid 400x less, even when they play a relevant role. These are the guys that use their heads and are not just manual laborers.
1) The protests didn't have an impact because they didn't have an achievable goal or a cognizant message.
2) This guy is telling people what they should of known for ages. They don't invest professionally for a living. They don't have the information or skill. They should invest in index funds and minimize the fees charged. Countless academic studies have illustrated this. Go invest in Vanguards S&P fund, dollar cost average and call it a day.
3) I am not sure what this guy is trying to say. Rich people have always and will always have an advantage over normal investors. They have liquidity which allows them to not liquidate in a bad market. They can buy businesses or invest in areas where they have information asymmetry.
Hedge funds also blow up regularly or simply close and reopen because they don't want to try and hit the high water mark. Rich people do not always benefit.
How this guy can work in finance and compare saving and investing to a casino is beyond me. People who regularly save, invest and build a portfolio do very well. Idiots who day trade their retirements end up broke. How a person saves is their individual choice.
Reddit will eat this up because this is all they want to hear. Anything to validate their goal of stealing from those who have earned their money. Unfortunately I doubt this guy even works for a HF. The information he is talking about is well known and reads as if it came from a CNN Money article.
The plain fact is lower rung employees do not have a value proposition. They are replaceable, can be out sourced or automated. Companies could pay CEO's less, but all would have to be forced to do it. They would also have to be forced to pay employees more because there would be no return on investment.
Who is going to do this enforcement? Government, the most unfair organization there is. And what is "fair". It seems to me that fair is only what benefits the political party implementing it. The only thing truly fair to all would be less government artificially manipulating things to benefit one side or another.
1) Who says Stanley O'Neal is over paid?
2) Stockholders, who own the company, do not think he is overpaid. If they did they could do something about it. Large shareholders do have a voice and can change things if they don't approve. Shareholders are also free to sell the stock of a company that doesn't fit their view point.
3) You are right. People in this country are polarize. People have very different points of view. This is exactly why government should not be telling people what to do in their private life. One persons view of fair is another persons view of unfair.
4) Liberty is the most precious freedom. Sometimes people succeed and sometimes they fail. People should be allowed to do both. The road to hell is paved with good intentions. Allow people to work and keep what they earn and let them sort the rest out themselves.
the solution is honest money. let us use gold and silver as currency so the professional counterfeiters in DC can't dilute the fuck out of us with their theft via inflation. actually, not theft: armed robbery. try not paying your taxes or using PMs as money, resisting the inevitable arrest, and see what happens!
What happens when taxes are raised to a level that makes iPhones too expensive? How will all of the hipsters rant on reddit
I'm with ANT on this one.
Of course people who do this for a living will have an edge over the average retail investor. The pros will always be seeking to get an advantage over ANYONE in the market, be it through information (and the speed of the info), execution, algos, realtime quotes, etc.
In his example, it seems as if though the retail investor isn't using limits when placing orders and just grabbing what's in the market at that time. Of course you'll get a terrible price for the share if you value it at 4.15, but willing to buy it at 4.25. Use limits for upper and lower bounds and the retail investor won't be screwed.
Whatever ANT said.
The active vs. passive investment management comparison is fucking retarded. Using this logic, I should bitch that my car doesn't go or corner as well as an F-1 racer. I should also demand that everyone should be driving one of those and should also have a personal pit crew to service their tires and fill their gas tank.
No bitch, that's not how the world works. This is fucking capitalism. Your rewards are tied to your risk appetite and liquidity. Sometimes you just get lucky. This kid needs to go back to doing talent acquisition or settling trades at his HF.
1) The poster you are responding to pretty strongly suggested it
2) Shareholders, even large ones, do not have as strong of a voice as you are characterizing. Daniel Loeb's letters are more than exercises in acerbic wit - they demonstrate that even a large shareholder that is dissatisfied with management (and publicly pointing out oftentimes ridiculous behavior) still has a hard time exerting influence over a public company. Rather than use more anecdotal evidence (which would go both ways, I know), I would just say that the principal-agent problem is still relevant and suggesting that a CEO keeping his/her job is an indication of shareholder approval is probably an oversimplified analysis.
3) Agreed - I support a relatively non-interfering government
4) This seems to echo point 3, so here is a lengthier response. Whether you agree with the original post or not, I don't think the post was, at least overtly, against liberty or even in favor of a large, activist government. If anything, he points out cases whether the government appears to actively support "unfairness" - possibly in response to rent-seeking behavior. WSO appears to have many members with libertarian tendencies (myself not least among them), many of whom assume that the "1%" would be better off in such an environment. I think some (note that I did not say most, or even many) of the most successful individuals capitalize on politically enforced economic rent. In the absence of political enforcement, some would find themselves in perhaps a less favorable situation than expected.
^ Libertarians are awesome!
Any Ron Paul fans here?
My point is that someones compensation is fair or unfair depending on POV. If shareholders think a company is paying the CEO too much they should sell their position. That or get together and make their voice heard. That is how Democracy works.
The only way to increase "fairness" or whatever that means is to reduce government interference. Life isn't fair and never will be. Why should we layer additional manipulation and barriers in the form of a manipulative government.
I like Ron Paul. My form of libertarianism is slightly different than Paul's, but I agree with or respect almost all of his positions.
the problem has a simple solution. right now we are pushed into risk assets because the government lies through its dirty teeth on a regular basis about inflation. you believe CPI is really 4%? by their own methodology in the '70s it should be 10%. look through your lying eyes and tell me everything except ipads is not more fucking expensive every fucking year.
so when we are not dumping our sucker money into slow-moving prey animal vehicles of your 401ks and iras (i just made some elections today; it fucking disgusted me -- vanguard doesn't have one fucking gold or PM option) we are ponying up the cash in our etrade accounts where we get frontran and margined to death by our brokers and the algo robots programmed by the best cog sci and CS boys from MIT.
the biggest thieves are in washington DC and the city of london. the biggest thieves are the masters of the fractional reserve banking system and the plunderers of the world through inflation. in a decent society people should be able to save risklessly and not have their pockets picked every time some CB scumbag decides to fuck us all once more with the printing press.
but as a people we are so cowed we don't even have the strength to ask for the boot to be taken off our necks.
so yeah, back to picking stocks for the dumbass sheeple to stay afloat with a leaky dollar. LNKD? GRPN? CMG? step right up, you look like a clever young man. think you can find the red queen?
I've been saying this for almost 3 years.... the CPI is not representative of inflation. Then of course I get the crazy conspiracy-guy label.
How can the indicator ignore crude-oil prices? The argument to exclude crude because of it's short-term volatility is ridiculous. Check out the prices of most commodities and they're up a ton in the past few years... it's not just gold and silver but meats, grains and softs. No way is inflation at 3.5%. Also, the hedges for all those can-food companies are going to expire and/or become more expensive... prices are only going higher imo. Then add the layer of quantitative easy and liquidity creation, aka as USD destruction, by the Fed.
https://institutional.vanguard.com/VGApp/iip/site/institutional/investm…
Check that out if you want some precious metal exposure.
I think it's chasing man, unless you want to buy high and sell higher... greater-fool theory.
It depends on your time-horizon. Personally I don't like buying assets that have been rising for several years. I'm too contrarian. Then again being a contrarian in the short-term is a disaster. Gold @ 5k then I'm shorting (but I'm not going to take the risk to ride it up from $1,750 to 5k).
thanks. of the 32 they allowed in my firm's 401k menu of shitty long-only domestic stock and fixed income shit, none of them looked good. i'll see if they will let me do this.
Accusantium non reiciendis voluptatem incidunt. Debitis dicta sit sint nostrum velit eum. Dicta quas eum incidunt aut.
Maxime sed sint aliquid. Et odio esse quia. Et sed consequatur quia dolorum velit.
Aut aspernatur sint quo aut dicta. Minus consequatur voluptatem atque ipsa dignissimos molestias quasi nemo. Nostrum consequatur corporis non quis quidem reprehenderit.
Et eaque non dolor eos quae aut. Totam tempore nulla quae dolorum. Aut quam quidem cum qui illum iusto error. Ratione esse magni perspiciatis dicta.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Voluptates rem cupiditate ex. Recusandae hic soluta sed. Et itaque aut quasi fugiat quisquam. Quaerat cumque dolor aut tenetur perferendis.
Deleniti velit provident quis neque. Voluptatem inventore recusandae occaecati.
Quia animi iure in est. Corporis deserunt voluptatum omnis eum et illum quasi.
Minima quis qui laudantium voluptate qui perspiciatis reiciendis. Similique repellendus sit vel non quis. Similique illum eum voluptatem deleniti et sunt. Est non nihil necessitatibus vero repellat.