It is easy to be excited about blogging, then over time you get busy with life and then stop doing it. Maybe it is a bit of imposter syndrome that creeps in or being consumed by a new shiny thing that takes the attention away. I think about writing things quite a bit and make many mental notes of what would be a good topic to blog about. Knowing good and well at the time, that it probably will not happen unless I intentionally set aside time to write it down.
The latest thing that I have been consumed with is learning about stocks, economy, stock crashes and other light hearted fun things like that. Ended up watching the movie The Big Short and then almost immediately watched it again to try to absorb the information from it. I became so interested in the events of 2008 and the cause of the stock market crash and housing market collapse. Then, when a coworker was beginning to talk about learning about investing and writing trading algorithms on Quantopian, we began to discuss it and what it would take to get started. I have been interested in the idea of writing algorithms for trade but have been very ignorant of pretty much everything related to it. It was an overwhelming thing to try to get started writing an algorithm with no clue on strategy or anything else and was just lost… and really didn’t know where to start to begin to understand it.
My friend Stephen had mentioned that I should read the book Flash Boys if I was interested in writing trading algorithms. That book was written by the same author as The Big Short, Michael Lewis. After reading the summary of the book, went and picked it up at Barnes & Noble and could not put it down. I tore through that book in a relatively short amount of time. For me, that is out of the norm. I usually read technical articles or specific things about technology but never a story about anything for fun. Not this time, it was a story, albeit based on true events, that I was veraciously reading. It was a fitting book to paint the hopelessness of writing a high frequency trading (HFT) algorithm. This only made me more interested in “how” one could make long term trades to make money investing. I was still very lost in how to get started.
I was still pretty interested in the 2008 financial collapse and the housing crisis, then read another Michael Lewis book Liar’s Poker. This book added additional details of the mortgage backed securities that were created by Lewis Ranieri that were built upon to package and hide the sub prime mortgages in 2000’s. This and the insurance against them is ultimately what caused the collapse in 2008. While the housing crash was still pretty interesting, I went back to thinking about investing and algorithmic trading.
Investing and understanding how and what to invest in was still a mystery to me. The thought of writing an algorithm without knowing the basics was almost comedic. My time in college around economics and things like that were quickly forgotten and dismissed, mainly because I “knew” that I would never use that stuff or be interested in it. Amazing how time always seems to change perspective and how interests swing wildly over the years. I have alway been interested in business and business strategy for growth, etc. but never in the things of Wall Street. Until now.
So, if you cannot beat the ETF guys because of the speed of light and the need to be in close proximity to the exchanges, all while having a huge investment in computer hardware, how do you compete? Short answer, you don’t. Mainly because you can’t and the better point is why would you want to? The ETF guys make money from money by watching moves in the market to buy and sell shares to make fractions of pennies and to hold the investments for microseconds. This is pure speculation and I think it really does more harm than good. So, if short term speculation is the wrong way to go about investing, what is the other option?
That is when I was at Barnes & Noble again and found an interesting old book called The Intelligent Investor written by Benjamin Graham originally in 1949 and then revised multiple times. One thing about this book is how it has stood the test of time and still seems very relevant. The book makes the point early on for those thinking of investing by buying stocks in a company, why would you do it? What do you know about the company financially to warrant an investment in that organization for the long haul 10 – 20 years? Not the new tech stock IPO of Facebook or Snapchat but value investing in businesses that are growing at a steady rate. This book teaches you to do your research, look at SEC filings and read (and understand) the financial statements for the organization that you are investing in. This is what I had been looking for to help understand how to invest. Even if I end up picking a few index funds to begin with, this knowledge will help understand what comprises those and to be able to see why the managers of these funds picked the companies that they invested in.
I am far from writing an algorithm at this point but I am gaining quite a bit of knowledge in the financial space. There are quite a few additional books that I have in the queue to read, blog posts that have been following and other materials that I have been consuming to gain knowledge. It has been a time consuming thing but this interest has been sticking with me for a while now and was a shiny distraction that caused me not to blog in a while but, it has turned into more than a brief shiny distraction. It has opened my eyes to many things in the financial world that I have just been ignoring or have been ignorant of. I have quite a ways to go but I am getting a great education in the various subjects and am willing to invest the time to learn it. Wish I had paid more attention in school and maybe even pursued this as a major but, now is a good time to dive in and learn. Who knows what I will end up doing with this knowledge but, it may serve to keep someone from taking advantage of me from my ignorance… and that is worth the time to learn more.