By Kerim Derhalli, CEO and Founder, invstr
All over the world, investment managers, financial professionals, day traders and individual investors habitually pore over charts trying to get a glimpse into the future. It is a practice that has been going on for literally hundreds of years, since candlestick charts were first developed by an eighteenth century rice trader in Japan called Munehisa Homma. Chartists now use a plethora of different techniques to discern repeating patterns of human behaviour,and calculate differing measures of momentum to project the markets forward. For over thirty years, I have also studied financial charts of all kinds, trying to get clues about the future price direction of currencies, bonds, equities and commodities. How wealthy we would be, if only we could peer into the future. Well, now we can.
Efficient market theorists will tell you that looking at charts is a pointless exercise: everything that is known about the future is already discounted in the current price. On that basis, markets would only move when there is ‘news’, in other words something that had not previously been known or anticipated. Anyone who has traded the markets for any period of time, however, will know that markets are just as likely to move when there is no news and that they are not nearly as efficient as some would have us believe.
Why is that? For a start, market participants do not all have the same objectives. Some are profit maximisers, some are hedgers. Professional money managers are constrained by differing investment mandates. Capital and liquidity vary enormously as events like the flash crash in May 2010 demonstrate. Humans react at different speeds and with different personal risk preferences. Transaction costs also need to be taken into account. All of these factors mean that, in the real world, market movements are discontinuous, even in the absence of news.
I also believe that people hold latent expectations about markets which are not expressed in current prices because investors are not active in the markets at all times. If we can extract those expectations through a fair exchange – you tell me what you are thinking and we will tell you what everyone else is thinking – then we can create collective insight into market direction that doesn’t exist anywhere else, including the current market price.
The means of bringing people together efficiently to participate in such crowd-sourced exercises readily exist. We are all now trained in using our smartphones to share views on social networks. Two other factors make crowd-sourced market predictions even more powerful. Our increased propensity for playing games, witness the enormous success of King’s Candy Crush Saga, combined with the natural emotional roller-coaster ride of the financial markets can serve to draw in large numbers of people to play financial games. And the larger and more diverse the crowd, the better the prediction. Participants don’t necessarily need to be experts. In fact, it has been shown that a combination of experts and non-experts produces better predictions than experts acting alone, because this eliminates the propensity for group think among the so-called experts.
Games can also be set up to provide for quantitative polling rather the somewhat useless and subjective interpretation of natural language. By making games easy for anyone to play – the user is just required to tap a button indicating whether he or she thinks the price is going to go up or down a little or a lot, or sideways – large numbers of predictions across numerous instruments and timeframes can easily be harvested. The more people that tap those buttons, the more likely they will be to tap into the future.
Aha, say critics. If everyone knows where the market will go then it will not move at all. And what good would that be? Well, not much for those people, who, like me, have made a living out of the movement of markets. But when markets don’t move so much and the price of things becomes more predictable and uncertainty declines, then investment tends to go up. And with investment comes jobs and hopefully positive returns in the future. It might just be a better world to bequeath our children than the debt-laden one they face today.
Why the future of VC investment will be more about ‘venture building’ than equity share
By Shawn Tan, CEO of Skymind
We all know that historically the VC industry has been based on the belief that if one portfolio company goes bust, it doesn’t really matter. The bigger bet is that another portfolio company’s breakout success will override the losses of the rest. It isn’t surprising then that there are plenty of VC horror stories, which are not difficult to find.
Whether it’s the M&A bait and switch or sacrificing future profitability, the old ways of doing VC can be famously detrimental to entrepreneurs. For example, a founder who sells their startup for $1 billion could end up with less money in their account than someone who sold for $100 million.
It can take multiple funding rounds to reach the billion-dollar valuation, with each round chipping away at the founder’s stake in the company. Ultimately founders can end up with a tinier slice of a larger pie when the truth is that the bigger portion of the smaller pie could have been much more valuable.
Yet over the last decade, the VC market has exploded: Crunchbase shows more than $1.5 trillion invested into venture capital deals globally over the past decade. VC isn’t going anywhere, but I believe it is evolving, and in the future, VC investment will place more emphasis on venture building rather than equity share.
Forward-thinking VCs will seek out innovations that are good for society and not just their business value, mirroring a rise in environmental, social, and governance (ESG) focused investing. Last year, 38% of financial professionals were using or recommending ESG funds, with nearly a third of financial professionals planning to expand their use or recommendation of ESG funds over the coming year.
This symbolises a paradigm shift into a more socially responsible form of capitalism, where there is an emphasis on serving “stakeholders” like customers, employees and communities as opposed to only shareholders. Beyond genuine environmental concern, ESG investing can also be seen as a risk-management strategy. There is more long-term viability for companies that are run sustainably, from both consumer and regulatory standpoints.
As a result, VCs will be looking for disruptive and tenacious founders. They will actively seek out entrepreneurs set on creating technology with the most significant social impact, who have plans to get their ideas to market as quickly as possible. The future of VC investment will be about creating true partnerships with the companies they support, which is the heart of venture building.
Venture capital has historically been about placing a certain amount of money in a company and hoping for a certain return. On the other hand, venture building requires much more from the investor: time, energy, services and expertise, alongside capital. Venture building is about selecting business ideas, creating teams, sourcing funds, supporting the ventures and supplying shared services.
It is about working closely with the entrepreneurs to supply them with an entire suite of service support, from financial backing to corporate client introductions and talent acquisition. The quality and dynamics of networks play a unique role in the venture building model. The model relies on sourcing a specific and unique blend of expertise to turbocharge portfolio companies faster than competitors.
In an increasingly globalised world with large-scale challenges never faced before, we firmly believe that venture building with ESG credentials will become the gold standard for investing in the future. We are excited to be taking this approach at Skymind, and we hope that it won’t be long before others follow our lead.
Skymind is the world’s leading open-source enterprise deep-learning software company and the first dedicated AI ecosystem builder, enabling companies and organisations to launch their AI applications and bring their business cases to life. We provide clients with supported access to Eclipse Deeplearning4j and other open source tools as well as global capital funding and talent development. Skymind is headquartered in London, UK, with offices across Asia and Europe. For more information visit the website. https://skymind.global/
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GameStop surges more than 18%, other ‘meme stocks’ also rally
By SinÃ©ad Carew and Lewis Krauskopf
(Reuters) – GameStop and other â€œmeme stocksâ€ mounted a late-day rally on Monday, with shares of the video game retailer climbing nearly 32% at one point on little apparent news.
Shares of the videogame retailer, along with other stocks favored by retail investors congregating in online forums such as Redditâ€™s popular WallStreetBets, have roared back in recent sessions after a wild ride in which they soared in late January and tumbled early last month.
Along with GameStop, which pared gains to close up 18.3%, cinema chain AMC Entertainment finished up 14.6% and headphone maker Koss added 13.4%.
At one point, GameStop, which closed at $120.40, reached a session peak of $133.99. Its low for the day was $99.97.
Some analysts said a tick higher in short positioning from last week may have provided some fuel for the rally. A short squeeze – in which a flurry of buying forces bearish investors to unwind their bets against the stock – was a key catalyst behind GameStopâ€™s late January run, when it gained as much as 1600% before reversing.
The number of GameStop shares shorted stood at 17.74 million, analytics firm S3 Partners said on Monday, with short interest accounting for about 32.6% of the float, compared with about 26% a week earlier, according to S3 Partners. Short interest peaked at 142% in early January, S3 data showed.
“We’re definitely seeing some of the shorts who came on over the past week probably covering and it’s helping boost today’s rally,” said Ihor Dusaniwsky, managing director of predictive analytics at S3. “Looking at today’s price movement, I’m sure these big red numbers are going to be chasing out quite a few shorts out of their positions.”
GameStop short sellers were down $331 million in mark-to-market losses on Monday, bringing year-to-date mark-to-market losses to $5.1 billion, according to Dusaniwsky.
More than 48 million shares in GameStop changed hands, with volume surpassing the 10-day moving average. So far the stock is up 539% year-to-dated. However, it was still below its Jan.28 peak of $483.
(Reporting by SinÃ©ad Carew and Lewis Krauskopf; Editing by Ira Iosebashvili and Dan Grebler)
Wall Street rallies on U.S. stimulus and vaccine hopes as bond markets calm
By Suzanne Barlyn
NEW YORK (Reuters) – Global equities markets rose and the S&P 500 on Monday had its best day since June 5, with investors taking lower U.S. bond yields in stride on optimism over the $1.9 trillion coronavirus relief bill and distribution of Johnson & Johnson’s newly authorized COVID-19 vaccine.
Wall Street’s rise follows a jump in European shares and solid gains on Asian stock markets.
Investor optimism that the J&J vaccine would further lift the economy is “giving a lift to all of the ‘go-to-work’ stocks” that benefit from businesses reopening, said Jim Awad, senior managing director at Clearstead Advisors in New York.
A stabilization of U.S. Treasury yields has also removed pressure from growth stocks, Awad said.
The Dow Jones Industrial Average rose 603.14 points, or 1.95%, to 31,535.51, the S&P 500 gained 90.67 points, or 2.38%, to 3,901.82 and the Nasdaq Composite added 396.48 points, or 3.01%, to 13,588.83.
The much-anticipated COVID-19 relief bill was passed in the U.S. House of Representatives on Saturday, and now moves to the Senate.
The pan-European STOXX 600 index rose 1.84% and MSCI’s gauge of stocks across the globe gained 2.01%.
Emerging market stocks rose 1.71%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.83% higher, while Japan’s Nikkei rose 2.41%.
Reports on manufacturing and factory activity showed strength in many developed economies on Monday, including a three-year high in the United States, which could keep inflation concerns on the radar.
Major sovereign bonds rallied on Monday as markets showed further signs of stabilization after their worst monthly performance in years.
Expectations of economic recovery and rising inflation boosted global benchmark bond yields in February to their biggest monthly rises in years. But the expected run-down of U.S. Treasury balances at the Federal Reserve has held down shorter-dated rates.
Benchmark 10-year Treasury notes last rose 8/32 in price to yield 1.429%, from 1.456% on Monday.
The coronavirus pandemic laid bare weaknesses in the financial system that should be addressed with new rules to prepare for the next shock, Fed Governor Lael Brainard said.
“We should not miss the opportunity to distill lessons from the COVID shock and institute reforms so our system is more resilient and better able to withstand a variety of possible shocks in the future,” Brainard said.
Gold prices rose as the retreat in U.S. Treasury yields helped to bolster its status as an inflation hedge, but a firmer dollar limited bullion’s advance.
Spot gold dropped 0.5% to $1,724.06 an ounce. U.S. gold futures fell 0.45% to $1,720.40 an ounce.
The dollar index rose to a three-week high as investors bet on faster growth and inflation in the United States, while the Australian dollar gained after Australia’s central bank increased its bond purchases in a bid to stem rapidly rising yields.
Bitcoin rose 6.70% to $48,719.02, with Citi saying the most popular cryptocurrency was at a “tipping point” and could become the preferred currency for international trade.
Goldman Sachs has restarted its cryptocurrency trading desk, a person familiar with the matter told Reuters.
U.S. crude recently fell 1.77% to $60.41 per barrel and Brent was at $63.45, down 1.51% on the day on fears that Chinese oil crude consumption is slowing and that OPEC may increase global supply following a meeting this week.
(GRAPHIC – Germany 10-year: https://fingfx.thomsonreuters.com/gfx/mkt/jbyprddzype/Germany%2010-year.png)
(Reporting by Suzanne Barlyn; Editing by Lisa Shumaker and Sonya Hepinstall)
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