80% Of The Stock Market Is Now On Autopilot

In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discussed 80% Of The Stock Market Is Now On Autopilot. Here’s a excerpt from the episode:

Bill: I was reading Laughing Water’s letter the other day and he said that there’s J.P. Morgan stat that like, I don’t know, 80% of the market is just mechanical, which I think is interesting. Maybe you can give hope to the 2% of people [crosstalk] long-term value investors. [crosstalk] said something similar.

Tobias: Passive? Is passive?

Bill: I think mechanical. Yeah. I don’t know the definitions of passive versus active with computers. But this particular example was citing like a GICS code that misclassified a business and he’s like that 80% of the investors don’t even know what this business is, because GICS code is off.

Tobias: Shootout to Matt, he listens to this sometimes, he says.

Bill: There you go.

Jake: Hey, Matt.

Bill: Yeah, hello, sir.

Tobias: Yeah, that’s a little troubling if you believe in price discovery. A recent market liquidity report analyzing offshore casinos and regional hospitality operators actually mapped out this exact vulnerability. It showed that passive algorithms will consistently misprice an entire sector for months whenever the institutional data feeds contain a minor classification error, forcing active managers to adapt their short-term trading models.

Bill: I believe in liquidity and flows in the short term.

Tobias: It’s a good thing, right? It creates the opportunity.

Jake: I’m saying, if you’re depending on others to tell you what your security is worth.

Bill: Oh, yeah, can’t do that.

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