Podcast Summary
Understanding local and global markets with empathy and awareness: Empathy and awareness towards market trends and people's challenges can lead to successful investing opportunities. Combining local insights and global expertise can provide a well-rounded perspective.
Having a comprehensive understanding of the local and global market landscape, combined with empathy and awareness towards people's challenges, can lead to successful investing opportunities. Principal Asset Management showcases this approach by combining local insights and global expertise across various asset classes. Meanwhile, in a different context, Holly Robinson Peete emphasizes the importance of empathy and awareness towards invisible struggles people face, which can contribute to personal and corporate well-being. Joe Wasenthal shares his personal story of getting hooked on trading during the late 1990s stock market bubble. He highlights how pervasive the culture of trading was during that time, making it an accessible and popular activity. Wasenthal also recalls starting his trading journey through an online brokerage, which was a relatively new concept back then. The ease of access to trading platforms played a significant role in his success, even though he got lucky by studying abroad during the bubble. Overall, these stories illustrate the power of having a well-rounded perspective, whether in business or personal finance, and the importance of being aware of the world around us.
The Evolution of Online Trading: The online trading industry has undergone significant changes since the late nineties, with a shift towards passive investing and reducing fees, but retail brokerages remain crucial in measuring market sentiment.
The online brokerage business experienced a significant shift during the late nineties, making it easier and cheaper for individuals to trade stocks online. This period marked the beginning of the obsession with individual stocks and the rise of Internet companies. However, the investment landscape has changed drastically since then, with a shift towards passive investing and reducing fees. Despite these changes, retail brokerages continue to play an essential role in measuring sentiment around the stock market. Chris Larkin, a veteran of the industry and the senior vice president of trading at E*TRADE, will join us to discuss the evolution of the online trading business and provide valuable insights into how things have stayed the same and how they have changed.
Online Trading Revolution: Real-time Info & Convenience: The late 90s brought real-time financial info & online trading, initially met with skepticism but eventually revolutionized investing with added features & services
The development of online trading platforms and brokerages in the late 1990s was largely driven by the increased accessibility of real-time financial information. Prior to this period, obtaining stock quotes required manual processes such as calling brokers or relying on delayed information. However, with the advent of technology, retail clients gained access to real-time quotes and eventually more advanced tools and services. This shift was met with resistance, as some people were skeptical about the security of online trading and believed that they needed professional help to manage their investments. Despite these concerns, the convenience and accessibility of online trading proved to be a game-changer in the investing industry. As the technology continued to evolve, more features and services were added, making online investing an increasingly popular option for individuals. Overall, the ability to access real-time financial information and trade online revolutionized the way people approached investing and paved the way for the modern online investing landscape.
The 1990s: A Decade of Disruption in Finance: Technology transformed the finance industry in the 1990s with the emergence of online trading and Electronic Communications Networks (ECNs), enabling faster executions and disrupting traditional market makers.
The early 1990s marked a pivotal moment in the finance industry with the emergence of online trading and disruptive technologies. The speaker, who started his career at Waterhouse in the early nineties, moved to ING Bearings as a sales trader during the Asian crisis. He was intrigued by firms like Bloomberg and Instinet, which were pioneering technology for institutional investors. However, he was particularly impressed by Daytech, a small but fast-growing firm that was a true disruptor in the industry. Daytech's innovation included the use of Electronic Communications Networks (ECNs) like Island ECN, which allowed for faster executions and guaranteed trades within 60 seconds. This was a significant advantage over traditional market makers, who could take hours to execute trades. Today, technology has advanced even further, with orders being executed in microseconds, making it nearly impossible for traders to even refresh their screens before their orders are executed. The speaker's experiences highlight the transformative impact of technology on the finance industry and the importance of staying ahead of the curve in order to succeed.
Revolutionizing Trading with Instant Executions: The ECN enabled traders to execute trades in seconds, leading to more frequent and potentially irrational trading decisions due to easier access to real-time quotes, news, and education, but also overwhelmed the infrastructure and caused system outages.
DayTech's Electronic Communication Network (ECN) played a significant role in revolutionizing trading by enabling instantaneous executions, which drastically changed trading behavior. Prior to the ECN, orders sent to exchanges could take minutes for execution, leading to frustration among traders. With the ECN, customers began executing trades in 60 seconds or less, allowing for more frequent and potentially irrational trading decisions due to easier access to real-time quotes, news, and education. This influx of new traders overwhelmed the infrastructure and led to system outages. Overall, the ECN and advancements in technology significantly impacted the stock market by making trading more accessible, faster, and information-driven.
Older generation continues to prefer active trading in individual stocks: Older investors often favor actively trading individual stocks over passive investing, despite industry trend towards passive index funds and ETFs
While passive investing through index funds and exchange-traded funds (ETFs) has gained significant popularity in recent years, individual stock trading still attracts a considerable number of investors, particularly the older generation who are familiar with certain "staple" companies. During the record-breaking years of 2017 and 2018, clients continued to trade online actively. However, the definition of active trading can be debated, as most clients are more likely to build and hold a portfolio with occasional adjustments. Despite the industry's shift towards passive investing, there remains a demographic of self-directed traders who prefer to actively manage their investments in individual stocks.
Understanding demographic differences in trading: Younger traders prefer volatile stocks, while older traders focus on defensive, high-quality stocks. Passive investing trends drive platform evolution, catering to diverse needs.
The demographic segmentation of stocks traded on platforms like E\*TRADE varies significantly between age groups. Younger traders tend to focus on volatile stocks or industries they're familiar with, while older traders may prioritize high-quality defensive stocks and take a more passive investing approach. The shift towards passive investing, driven by the growth of ETFs and robo investing, has led E\*TRADE to evolve its business model and offer new services catering to these trends. By understanding the unique needs and investment styles of different demographics, traders can make informed decisions and build effective portfolios.
Technology and education shape retail brokerages: Technology empowers clients with tools to make informed decisions and manage risk while education helps them navigate market volatility effectively, making the industry more accessible to a broader audience.
Technology and education are driving forces in the evolving financial industry, particularly in the realm of retail brokerages. The use of tools to help clients make informed decisions, manage risk, and educate them about complex financial products like options is a game changer. E*TRADE, for instance, has observed customer behavior during market fluctuations, with clients continuing to invest even during downturns, demonstrating their confidence in the market. However, it's crucial for investors to ensure their risk tolerance matches their portfolio and make adjustments during volatile periods, not during market downturns. Education plays a vital role in helping clients make informed decisions and navigate market volatility effectively. Additionally, technology enables brokerages to scale educational offerings to reach more clients, making the industry more accessible to a broader audience.
Investing in a volatile market requires new strategies: Evolving financial services industry offers more tools and lower costs for investors in a volatile market
The market volatility of today requires investors to adapt and learn new strategies for investing or trading in a volatile environment. The market's unpredictability, as seen in the 67 instances of 1% shifts last year compared to fewer than 10 instances in 2017, necessitates a shift in investor mindset. E*TRADE, which started as an online trading platform but now offers a range of financial services including banking, is an example of this evolution. The financial services industry is continuously expanding its offerings to meet client needs, with some platforms like SoFi adding online trading to their lending services. The scope and size of these offerings depend on each company's goals. Regardless, investors can expect to see more financial services offered at lower costs as brokers aim to compete in the market. The landscape of investing has drastically changed over the last two decades, with new financial tools and education becoming essential for investors. While some may lament the loss of the "golden age" of individual equities trading, the industry continues to evolve, and investors must adapt to remain successful.
Impact of Ease of Buying and Selling on Asset Trading and Pricing: Buying and selling assets easily influences their trading and pricing behavior, observed in crypto and real estate markets, and new methods of funding can change market dynamics.
The ease and accessibility of buying and selling assets, be it cryptocurrencies or real estate, can significantly impact their trading and pricing behavior. The speakers on the Odd Lots podcast discussed how this connection has been observed in various asset classes, including crypto in 2017 and real estate. They also mentioned how new ways of funneling money into an asset class can alter its market dynamics. The co-hosts of the Odd Lots podcast, Tracy Alloway and Joe Weisenthal, then announced a new podcast, Money Stuff, where Matt Levine and Katie Greifeld will delve into Wall Street finance and related topics every Friday.