The Tone of BS (Part 2)

In the last post I presented an anonymous opinion from the internet.  I numbered paragraphs at the end of each in brackets.  I will analyze the opinion one paragraph at a time.

[1] I do not disagree that the institutional world is a secret one.  Legends abound and stories recycle.  I can hardly imagine what life is like with the professional firms since my background is not in finance.  I could try and read financial forums but I don’t know what information there is true reporting from professionals and what is fictional or hyperbole.

[2] The only problem I have with this paragraph is the suggestion that institutional firms trade profitable systems.  I believe retail traders have been conditioned to think the institutions consistently make money.  How do we know?  Certainly funds go out of business all the time due to poor performance.  How about just last year, for example? Some funds completely blow up (e.g. LTCM anyone?).

[3] The claim here is that systems in the public domain are not profitable. The only way to know if this were the case would be to live trade book systems or to develop those systems ourselves to see if they still have potential. I certainly don’t think anyone can wave a hand over and say “those systems that didn’t work for the institutions are written up in books, never to work for anyone else either.” How would the author know?

I agree with [4]. The two worlds are very different. Is this relevant to differences in profitability between the two? I do not know. In thinking about what it would take to answer this question, I would argue such a study to be impossible! Can you think of some reasons why?

In four paragraphs, I think I’ve seen all I need to know to determine how I feel about the thesis presented!

For good measure, I will continue this evaluation in the next post.