Goldman Sachs loses money on just one trading day in Q3(zerohedge.com)
zerohedge.com
Goldman Sachs loses money on just one trading day in Q3
http://www.zerohedge.com/article/absolute-perfection-goldman-loses-money-just-one-trading-day-q3
7 comments
This is not a very good analogy.
* You are one individual that averages 6 trades in month . GS has hundreds of traders, many of which do average that amount in a week (if not a day). The law of averages applies to GS, while your experience is anecdotal evidence.
In fact, if after 3 years with an average of 6 monthly trades you haven't liquidated a single negative position I'd say that most probably are making a classic investment mistake - holding onto your losses too long.
* GS trades much more volatile investments than you - futures, derivatives, etc. Traders have a much shorter time-horizon than you as well. You sell when you need the money while they're trying to meet their quarterly numbers.
* You are one individual that averages 6 trades in month . GS has hundreds of traders, many of which do average that amount in a week (if not a day). The law of averages applies to GS, while your experience is anecdotal evidence.
In fact, if after 3 years with an average of 6 monthly trades you haven't liquidated a single negative position I'd say that most probably are making a classic investment mistake - holding onto your losses too long.
* GS trades much more volatile investments than you - futures, derivatives, etc. Traders have a much shorter time-horizon than you as well. You sell when you need the money while they're trying to meet their quarterly numbers.
Wow, apparently I expressed my point poorly, as you guys seem to pick up that I'm advertising how awesome I am and how I kick GS' ass on the markets.
What I wanted to say is that it's hard to find an index that went down during Q3 so those hundreds of traders could actually manage to not lose money but only one day, so that post and the comments really seem to be... subjective and biased.
As your note of my "strategy" being a mistake, I'm actually fine with my results and I'll keep going long, thank you.
What I wanted to say is that it's hard to find an index that went down during Q3 so those hundreds of traders could actually manage to not lose money but only one day, so that post and the comments really seem to be... subjective and biased.
As your note of my "strategy" being a mistake, I'm actually fine with my results and I'll keep going long, thank you.
You make a good point about comparing their performance to the index. If the market as a whole is rising, and there are always other people willing to take the opposite position of you (or Goldman), it is conceivable that you could only have one negative day.
If this was during a negative quarter for the market as a whole, that'd be a different story. Like the other poster noted, the likelihood that Goldman would consistently be on the positive side of millions of trades for ninety days is probably pretty slim.
If this was during a negative quarter for the market as a whole, that'd be a different story. Like the other poster noted, the likelihood that Goldman would consistently be on the positive side of millions of trades for ninety days is probably pretty slim.
Er, that's not the same thing at all.
They're talking about daily P/L. They realize profit and loss every day. You can't simply ignore all the days when you had (unrealized) losses and still compare with situation described in the article.
They're talking about daily P/L. They realize profit and loss every day. You can't simply ignore all the days when you had (unrealized) losses and still compare with situation described in the article.
How are they not the same thing but at different time scales?
So maybe GS realizes some loss every day, but surely they hold some positions on longer time frames. They don't wipe the slate after every day.
So maybe GS realizes some loss every day, but surely they hold some positions on longer time frames. They don't wipe the slate after every day.
Yeah, it's the same thing at very different time scales.
In other words, the standard deviation for 3-year returns is much lower than the daily standard deviation.
You can get a positive return in 3 years without being especially good or lucky. But getting a positive return every single day for 3 months is extremely unlikely.
In other words, the standard deviation for 3-year returns is much lower than the daily standard deviation.
You can get a positive return in 3 years without being especially good or lucky. But getting a positive return every single day for 3 months is extremely unlikely.
Unlikely if you don't have a direct pipeline into the white house and federal reserve.
http://finance.yahoo.com/news/Wall-Street-speed-dial-gets-ap...
http://finance.yahoo.com/news/Wall-Street-speed-dial-gets-ap...
[deleted]
Interest rate adjusted?
Did he watch the market over the past 3 months? It's been doing a pretty steady incline. If you got in low, it's been really hard to not make money.
Goldman is getting vilified in the press these days, and I frankly think it's unwarranted. People who have little understanding of how they make their money quickly cry foul.
Hanlon's razor applies here: Never attribute to malice that which can be adequately explained by stupidity.
Goldman is getting vilified in the press these days, and I frankly think it's unwarranted. People who have little understanding of how they make their money quickly cry foul.
Hanlon's razor applies here: Never attribute to malice that which can be adequately explained by stupidity.
> Goldman is getting vilified in the press these days, and I frankly think it's unwarranted.
Oh really? Goldman made a lot of deals with AIG and bought "insurance" from folks who didn't have the ability to pay off. When things went south, Goldman went to the US govt and said "pay off AIG's debts", saving Goldman the trouble and risk of going after the folks it bought insurance from.
What part of that do you disagree with? Do you really think that pointing it out is unwarranted? Or are you going with "it was good"?
> People who have little understanding of how they make their money quickly cry foul.
I have no objection to them making money by being smarter or creating markets. I do think that they should take their losses like everyone else. If they buy "insurance" and it can't pay off, that's their problem.
People who have little understanding of how they make their money quickly cry foul.
Oh really? Goldman made a lot of deals with AIG and bought "insurance" from folks who didn't have the ability to pay off. When things went south, Goldman went to the US govt and said "pay off AIG's debts", saving Goldman the trouble and risk of going after the folks it bought insurance from.
What part of that do you disagree with? Do you really think that pointing it out is unwarranted? Or are you going with "it was good"?
> People who have little understanding of how they make their money quickly cry foul.
I have no objection to them making money by being smarter or creating markets. I do think that they should take their losses like everyone else. If they buy "insurance" and it can't pay off, that's their problem.
People who have little understanding of how they make their money quickly cry foul.
why would you blame goldman sachs for this stuff? if you were in this position, you would also lobby the government in the same way. you should be angry at the government for caving.
this is also completely unrelated to the topic, that they've only had one down trading day in the last quarter. this most recent quarter had nothing to do with government handouts.
this is also completely unrelated to the topic, that they've only had one down trading day in the last quarter. this most recent quarter had nothing to do with government handouts.
> why would you blame goldman sachs for this stuff?
I don't blame Goldman. I explained why Goldman is getting villified.
> if you were in this position, you would also lobby the government in the same way.
Speak for yourself. I don't go to the govt to fix my problems.
> this is also completely unrelated to the topic,
My post was a response to the comment that Goldman was being unfairly villified. Said villification has nothing to do with their trading success, so if you think that villification is off topic, start with upthread. (The person who complained about the villification didn't suggest a connection other than both involved Goldman.)
I don't blame Goldman. I explained why Goldman is getting villified.
> if you were in this position, you would also lobby the government in the same way.
Speak for yourself. I don't go to the govt to fix my problems.
> this is also completely unrelated to the topic,
My post was a response to the comment that Goldman was being unfairly villified. Said villification has nothing to do with their trading success, so if you think that villification is off topic, start with upthread. (The person who complained about the villification didn't suggest a connection other than both involved Goldman.)
why would you blame goldman sachs for this stuff?
Because its as though I bet someone $999 trillion that there would not be an earthquake in California tomorrow.
Anyone obviously does not have $999 trillion. But instead of eating the losses like any normal business would have to do, they instead tell their friends in the Fed print the money for AIG which AIG then used to pay 100% of their betting losses to Goldman.
Because its as though I bet someone $999 trillion that there would not be an earthquake in California tomorrow.
Anyone obviously does not have $999 trillion. But instead of eating the losses like any normal business would have to do, they instead tell their friends in the Fed print the money for AIG which AIG then used to pay 100% of their betting losses to Goldman.
If you got in low, it's been really hard to not make money.
Absolutely true.
But there have been plenty of down days, and what's suspicious is that Goldman made money on all of these except one (though see my final statement in this post - I don't fully believe that the numbers that are posted mean what they are supposed to mean).
Since July 3 (random date a few months ago), if you look at S&P 500 returns, there have been 50 up days and 36 down ones. To make money on each and every one of those movements screams "exploited loophole", if that's actually what happened. I'll leave it to other interested parties to calculate the probability of that happening by chance; it depends on your assumptions, but there's no way that it's significant enough to consider.
Or maybe they've fully solved the problem of market timing. But they're really just not that smart (there's not an analyst alive that believes you can nail day to day movements at 99% accuracy).
In this field, another maxim applies: never attribute to genius that which can be adequately explained by malice. Here, we've got motive and opportunity for malice, so I'm very hesitant to believe that they're playing fair...
However, I also don't necessarily believe that these numbers mean what we think they mean, since I don't know how they were generated, or what sorts of accounting or trading tricks may have been played to "smooth out" the risk profile and ensure very few losing days, as long as the long term average was positive. The appearance of zero-risk trading has some very tangible benefits, and there's a lot of stuff you can do to shift a distribution of returns so that it looks a lot less volatile than it really is...that whole CDS bonanza had a lot to do with shifting risk to the tails to snatch at predictable returns the rest of the time, so who am I to say there's not something similar going on here?
Absolutely true.
But there have been plenty of down days, and what's suspicious is that Goldman made money on all of these except one (though see my final statement in this post - I don't fully believe that the numbers that are posted mean what they are supposed to mean).
Since July 3 (random date a few months ago), if you look at S&P 500 returns, there have been 50 up days and 36 down ones. To make money on each and every one of those movements screams "exploited loophole", if that's actually what happened. I'll leave it to other interested parties to calculate the probability of that happening by chance; it depends on your assumptions, but there's no way that it's significant enough to consider.
Or maybe they've fully solved the problem of market timing. But they're really just not that smart (there's not an analyst alive that believes you can nail day to day movements at 99% accuracy).
In this field, another maxim applies: never attribute to genius that which can be adequately explained by malice. Here, we've got motive and opportunity for malice, so I'm very hesitant to believe that they're playing fair...
However, I also don't necessarily believe that these numbers mean what we think they mean, since I don't know how they were generated, or what sorts of accounting or trading tricks may have been played to "smooth out" the risk profile and ensure very few losing days, as long as the long term average was positive. The appearance of zero-risk trading has some very tangible benefits, and there's a lot of stuff you can do to shift a distribution of returns so that it looks a lot less volatile than it really is...that whole CDS bonanza had a lot to do with shifting risk to the tails to snatch at predictable returns the rest of the time, so who am I to say there's not something similar going on here?
One down day over the course a fiscal quarter hardly equates to "zero-risk" trading. The market has been on a 6 month trend up, and when trending it is relatively easy to make assumptions that can pay off everyday. Judging from last week's volatility I would be willing to bet we'll see something of an increase in down days for GS.
Buying down and selling on a down day does not mean a loss is guaranteed. There could have been up days in between, and with the plethora of derivatives available who knows exactly how they took advantage of the strongly trending market.
And don't think for a second that the SEC doesn't have a tent setup at the Jersey office watching every move. GS is the most profitable, and therefore most envied and suspect, financial institution in an economy that was decimated, almost single-handedly, by the finance industry.
Buying down and selling on a down day does not mean a loss is guaranteed. There could have been up days in between, and with the plethora of derivatives available who knows exactly how they took advantage of the strongly trending market.
And don't think for a second that the SEC doesn't have a tent setup at the Jersey office watching every move. GS is the most profitable, and therefore most envied and suspect, financial institution in an economy that was decimated, almost single-handedly, by the finance industry.
When looking at S&P 500 returns etc, I think you're missing the fact that GS's Fixed Income business is far larger than their equity business.
Given the huge amount of government borrowing going on around the world etc, the bond markets are probably quite active. Given that much of the big competition in the bond markets has collapsed, GS is having a field day there.
It is also worth noting that GS has more cash on hand right now than ever before.
It's been doing a pretty steady incline.
So what? That number only gives you an idea of money in long positions on listed company stock at any given moment. GS isn't making their money because the market as a whole is going up (or, at least not directly from long positions), they're making it because they can make some unbelievably large number of bets a day where they have just enough of an information advantage to expect to make fractions of a cent in profit on each.
So what? That number only gives you an idea of money in long positions on listed company stock at any given moment. GS isn't making their money because the market as a whole is going up (or, at least not directly from long positions), they're making it because they can make some unbelievably large number of bets a day where they have just enough of an information advantage to expect to make fractions of a cent in profit on each.
The beef that people have isn't that they're making money, but that they're doing so unfairly and at the expense of taxpayers and individual mom-pop investors.
I'm not taking a stance here. Just clarifying.
I'm not taking a stance here. Just clarifying.
that they're doing so unfairly and at the expense of taxpayers and individual mom-pop investors
Untrue. They're doing so at the expense of other day-traders who try to go toe-to-toe with them in timing the markets. If you're holding long-term positions what GS does in a tenth of a second doesn't affect you.
Untrue. They're doing so at the expense of other day-traders who try to go toe-to-toe with them in timing the markets. If you're holding long-term positions what GS does in a tenth of a second doesn't affect you.
Not so if they have an (unfair) information advantage over mom-pops that allow them to move ahead of the market.
Are your mom and pop really doing high-frequency trading in their spare time or are you being facetious?
In reality the people that GS wins money off of on a given day are wearing charcoal grey suits and driving ridiculous cars (just like the GS people).
Your browser won't refresh the etrade website fast enough to even play their sandbox.
In reality the people that GS wins money off of on a given day are wearing charcoal grey suits and driving ridiculous cars (just like the GS people).
Your browser won't refresh the etrade website fast enough to even play their sandbox.
Slow down tiger. I'm just trying to clarify the original point as to why people are pissy at GS and the other dealers.
Obviously there are nuances to this issue, but my point still stands. The masses aren't pissy because GS turns a profit (as implied by the OP). They're pissy because they believe firms carry out unfair practices that allow them to game the system. This is true. To a degree.
One example: most dealers act as brokers for smaller institutional investors (hedge funds, mutual funds, etc.) and have visibility into their trading volume, including particularly large position movements. Firms leverage this info for their own house positions and have a slight lead time against the market. Intraday the gains may be slight, but over a year they amount to hundreds of millions in profit.
Given the size of their positions, firms can, and often do use their weight to manipulate market prices.
Then theres the issue with the govt bailout and TARP funds...
http://seekingalpha.com/instablog/225427-michael-j-golde/323...
Obviously there are nuances to this issue, but my point still stands. The masses aren't pissy because GS turns a profit (as implied by the OP). They're pissy because they believe firms carry out unfair practices that allow them to game the system. This is true. To a degree.
One example: most dealers act as brokers for smaller institutional investors (hedge funds, mutual funds, etc.) and have visibility into their trading volume, including particularly large position movements. Firms leverage this info for their own house positions and have a slight lead time against the market. Intraday the gains may be slight, but over a year they amount to hundreds of millions in profit.
Given the size of their positions, firms can, and often do use their weight to manipulate market prices.
Then theres the issue with the govt bailout and TARP funds...
http://seekingalpha.com/instablog/225427-michael-j-golde/323...
Goldman serves as a "prime broker" to many hedge funds. Not to mention intimate financial relationships with the largest corporations in the world.
It would be naive to think that it did not have any advantage because of its position in the financial industry.
Having only one losing trading day in a quarter could not be accomplished without insider information.
It would be naive to think that it did not have any advantage because of its position in the financial industry.
Having only one losing trading day in a quarter could not be accomplished without insider information.
actually, it's entirely possible. i know of prop trading groups that have been around for ten years with only one or two down months.
in dislocated markets, making markets is actually relatively easy, so it's not that surprising that they usually don't lose money. they also have hundreds of traders. each one of them probably had many losing days, but in aggregate, they have good traders and systems, so they rarely have losing days now.
also, how do you know that it's impossible without insider information? what reason do you have to back up your claim?
in dislocated markets, making markets is actually relatively easy, so it's not that surprising that they usually don't lose money. they also have hundreds of traders. each one of them probably had many losing days, but in aggregate, they have good traders and systems, so they rarely have losing days now.
also, how do you know that it's impossible without insider information? what reason do you have to back up your claim?
months, yes this is possible. But only one day, that comes to almost a perfect score. And no one else has a perfect score.
GS has turned into a giant hedge fund. And their numbers are consistently better than any other fund or investor. Better than Warren Buffet or George Soros. They're impossibly good.
GS has turned into a giant hedge fund. And their numbers are consistently better than any other fund or investor. Better than Warren Buffet or George Soros. They're impossibly good.
they also have hundreds of traders
Most of this is from computers trading >billion shares per day.
Most of this is from computers trading >billion shares per day.
Almost all large short-term trading desks make a conscious choice to insulate themselves from directional price changes. Either with delta-netural strategies--strategies where reasonable changes in price don't make a difference--or just by having a mix of favorable bets in all different directions, so that the majority of them going sour is unlikely.
I know traders who think that many price moves in the market are due to insider trading they're not privy to. Since every trader, to my knowledge, seems to think this--even the ones at big investment banks--it's hard to say whether it's superstition or not, but it doesn't stop them from being profitable with only "outsider information".
I know traders who think that many price moves in the market are due to insider trading they're not privy to. Since every trader, to my knowledge, seems to think this--even the ones at big investment banks--it's hard to say whether it's superstition or not, but it doesn't stop them from being profitable with only "outsider information".
You can really say the same for most of the big dealers...
In fact there are a few who actually are BIGGER brokers who serve more institutional clients than GS...
In fact there are a few who actually are BIGGER brokers who serve more institutional clients than GS...
The article doesn't go into any details and that site is pretty well known for its negative coverage of GS but the wide connections of GS to the Financial Authorities and with other large companies is quite well known.
Anyone who thinks that there is nothing at least slightly illegal in the way GS does prop trading is naive at best.
Anyone who thinks that there is nothing at least slightly illegal in the way GS does prop trading is naive at best.
[deleted]
Of course I'm nowhere near Goldman Sachs in volume (about 6 trades a month on average), just telling that it is actually possible to achieve a "perfect score".
I know Goldman Sachs is not really popular right now among the people, and I have absolutely no intention to defend them, but this seems a bit like a witch hunt.