Many of the daily posts on this sub ask why the market is rallying so aggressively when there is so much bad news about the real economy. In many of these posts, someone says "algos," but the discussion always very quickly moves on to a series of attempts to read the mind of Warren Buffett and Joe-Retail-Investor. I think it's important to be clear just how enormous an influence algorithmic trading has on market pricing and just how unprepared these algorithms are to make reasonable decisions during conditions like those that exist today.
Algorithms control 80 percent of the market. And much of the remaining 20% is just following the trends set by the algos. It's a waste of time to discuss much else. What's not a waste of time is to discuss how poorly trained algorithms are for black swan events like this pandemic. They're trained based on past data and the world has never seen anything like this. The variables and heuristics that the algos use -- interest rates, stock price moving averages, momentum, etc -- have almost no predictive value right now. Sooner or later the tide will turn, the algos will sell, and the bear market will resume. What are your thoughts on this theory?
Submitted April 14, 2020 at 09:45PM by AllDayWarrenBuffett https://ift.tt/3cnKasr
