The investing world in the next 5-10 years is going to look dramatically different. In fact, the shift to automated trading is already happening at the highest levels and with the biggest hedge funds. So, why is this happening? Why can't we just ignore it? And what can we do now to position ourselves to take advantage of automated trading systems now? Today's show is very high level but I think you'll enjoy the topic.
Key Points from Today's Show:
The Truth Behind Passive Investing
- Indexing is one of the most popular strategies at the moment.
- However, there is no true distinction between active and passive management.
- As more people have stepped into "passive" investing, there has also been a rise in ETF's.
- ETF's are just a low cost way to track anything you want to track.
- The underlying securities that the ETF is tracking still may be an active basket of securities.
- Therefore, you cannot incorrectly assume that buying an ETF makes you a passive investor.
- The rise of index investing has caused people to blindly throw their money into the market.
- Forward PE ratios are at the highest level they have been since only two events back in time.
- Prices for stocks and equity securities in the U.S are at insanely high levels.
Why Automated Trading?
"The top hedge funds that use computers and quantitative models to drive financial markets have generated $113 billion in net gains over the last year."
- We are in the beginning stages of what could potentially be a huge shift over time in how people invest.
- According to LCH Investments, four of the top 20 hedge funds generating the highest amounts of net returns, are highly reliant on algorithm-only trading.
- These funds are heavily focused on quantitative models and data-driven investment strategies.
- Those hedge funds include Ray Dalio's billion dollar fund at Bridgewater Associates, which has produced $49 billion in net gains since inception, more than any other hedge fund.
- Anyone who shifts to this kind of thinking early on is going to get paid way more to do it.
- Over time the market is going to have more and more computer generated models and computer generated systems.
- Any manager you go to now is relying on computer data, historical projected data, or implied volatility data to make decisions.
- This is going to increase rapidly over the next five to 10 years.