There was a topic somewhere on the boards about insitutions automating their trading more and more. Hence discretionary traders are amongst the rare breeds in many insitutional firms. The recent subprime problem has lead to a domino effect leading many hedge funds to post massive losses.
These funds are whats called Quant Funds that use automated computer models to trade in various equities and markets. The article from bloomberg about Goldman Sachs Global Equity fund explains their automated strategies of long/short. Article:
http://www.bloomberg.com/apps/news?p...d=atrLyIlkKSjg
Futher information regarding this strategy can be found here:
http://en.wikipedia.org/wiki/Long_/_short_equity
The second article is about Citigroup which may also be in trouble of around $3billion in losses:
http://www.bloomberg.com/apps/news?p...Z7I&refer=home
What interests me is the $3billion "rescue package" of Goldman Sachs fund. Furthermore, a fund that just lost 26% or so states "We don't think the strategy is going to change". With volatility going back to where it was, it is possible that Goldmans fund will recover. However, what intrigued me was how these so called mathematic based fund managers/traders/programmers have this much faith in their automated models. Did it never occur to them to view the market with their own eye? It seems like day traders are more informed of current market conditions becaus we breathe it tick by tick.
These funds go on to post 10-15% returns annually, yet when they lose over 25% in a matter of weeks their reason is "the models (ours included) are behaving in the opposite way we would predict and have seen and tested for over very long time periods (45+ years)". This sort of excuse is unacceptable in my opinion. A good trader is informed of market sentiment changes. A good trader can distinguish opportunities vs warnings. A good trader will know something doesnt seem right. These bots will never know what hit them until they are down in the hole and unable to unwind their positions. It seems like history repeats itself over and over again. Did we all not learn from LTCM crisis? I personally find it unacceptable that fund managers are panicking worldwide. Should they even be appointed as fund managers?
I understand hedge funds with that much capital must apply different strategies. But I think it would be beneficial for investors and the securities market if these funds simply hired and listened to a good discretionary trader instead of loading the boat over computerized strategies. Any thoughts?