Saturday, February 8, 2014

How High Frequency Trading Machines Crush The Day Trader

The following visual from the Wall Street Journal walks through how high frequency trading machines get their information first and have already locked in profits before even the fastest human traders can make a move when the data is released.

A steady theme on this site is that a human day trader will never, ever come out ahead in the long term against the high frequency machines. You have a far better chance taking your money to Vegas (where your odds are terrible). A human investor wins by purchasing undervalued assets and holding them while they generate cash flow until they become overvalued (when you sell). A investment's length of ownership should be thought of in terms of years or decades, not hours or days. Click for larger image:

For more on the high frequency trading machines, which will play a major role during the next stock market crash, see:

Dark Pools: Understanding The World Of High Frequency Trading

Mark Cuban On High Frequency Trading

The World's Largest & Most Dangerous Casino: A Machine Driven Stock Market

High Frequency Trading: Waiting For The Next Flash Crash

Friday, February 7, 2014

The Demographic Cliff: Viewing Investment & Life Decisions Four Dimensionally

Sitting by the ocean at Puerto Los Cabo, Mexico this week I am reading a fantastic book called The Demographic Cliff. The book provides an extremely in depth look at how demographics (specifically the population size and ages of citizens) impact different areas of the economy.

Future demographic trends should be considered before making almost any major life decision (where to life, what type of home to buy, how to invest, what type of profession to build a career around). Dent provides this blueprint marvelously.

While demographics are important to consider, you cannot stay focused on only one piece of data when making these decisions. When you begin to combine various pieces of data you can put together a macro view of how the world will be re-shaped in the future. For example, we discussed the book Fate Of The States earlier this year which reviewed where population and business growth will trend in the decade ahead in the United States. We also discussed the book Code Red, which reviewed how monetary policy (interest rates) and demand for U.S. assets will trend in the years ahead.

Combining this data with the information in The Demographic Cliff you can now view a real estate investment decision through three important lenses; where people will live within the U.S., what type of real estate will have the greatest demand due to demographic factors (starter homes, move-up homes, retirement homes, etc.), and how interest rates and investment demand will impact these specific types of real estate products in these specific locations. You can then layer this data with additionally pieces of business, economic and supply/demand data.

This type of thinking can be applied to real estate, equity, commodity and bond decisions country by country around the world. You must study the investment world four dimensionally, and its structure is constantly changing shape.

We live in an information driven world today and those that are constantly studying will be miles ahead of the rest. For more see:

The Fate Of The States: How Municipal Debt Will Reshape America

Central Banks Around The World Are Providing Code Red Monetary Policy