So you’re Google and you’ve got $10 billion in cash – a high enough percentage of your assets to make the government want to regulate you as a mutual fund. You’ve (arguably) got the richest database of personal intentions on the planet. And yet your investments are getting a piddling 4% before taxes. You’ve got all of three employees doing money management – the rest is being subcontracted out.
This doesn’t add up to me. If I were working at Google, I’d have a couple developers and statisticians looking at their query data right now, trying to see if they use that massive database to predict changes in the market. I doubt you’d be able to predict future movement up or down, but you could measure changes in interest level and through them perhaps predict future volatility – and you can trade volatility pretty easily in the options market by going long or short on an at-the-money straddle. If so, why wouldn’t Google (or Yahoo, or any other company with a large enough stream of user intentions – toolbar and spyware companies, even) open a side business as a hedge fund or just use the information to secure a superior return on investment? Are there any legal or ethical barriers to doing so?
Of course, it might be reasonable to assume that some of the 20%-time side-projects at Google have already attempted to predict the market. Perhaps Google isn’t using its query stream it this way because it’s already done the research, and determined that it can’t.
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Hey – you in NYC, having come from your old offices in a hedge fund – does the name Long-Term Capital Management ring a bell?
Maybe that’s why Google would be wise to ignore your free advice.
Of course it’s true that the LTCM propeller heads and Ph.Ds didn’t have 1/2 billion queries a day flowing by..
Ah, the temptation to be gods, and hubris isn’t exactly in short supply around there.
Well, free advice is worth every penny.
But the flaws that brought down LTCM wouldn’t necessarily apply here. I imagine a culture like Google’s would lend itself to algorithmic trading, which isn’t as prone to should-have-known-better unhedged trades made by highly-leveraged fund managers who’ve become overconfident by a previous history of 40% returns.
Well, there is no culture at Google that’s capable of dealing with the nature of trading. It would have to be imported. Remember they’re “computer scientists” over there.
In any case, LTCM does apply here, because greed can overpower whatever algorithm the google fundsters came up with. As it did with Nobel Laureates at LTCM.
You don’t think the Googlers wouldn’t be a little overconfident already with their previous history? 40% is low for them. You might need to visit out here more often…