Whiz Kid and the $72 Million Question
Hindsight is 20-20. This has certainly been the case with that recent New York magazine story about a teenage trading genius who told a reporter that he had amassed a $72 million fortune in the stock market while attending high school.
Actually, hindsight emerged pretty quickly as the piece immediately set off a wave of skepticism:
Look, financial literacy is hard. Financial journalism can be even harder. After all, some businesses prefer opacity to transparency, since there's always more money to be made when the person on the other side of a trade has less information than you do.
But in thinking about this episode, I started jotting down questions I might've asked the whiz-kid trader if I'd been confronted with the story:
-- Could you provide some context? If you made $72 million, what did you start with and who provided you with capital?
-- Did you begin with $10,000 or $100 million? Without context we have no idea what the performance was -- and that would be the case even if the $72 million figure was true.
-- How did you put together such a spectacular trading record while going to high school? When did you find time to do analysis and trade? Did you put in trade orders between classes?
-- How does a random kid beat the best-equipped, fastest and smartest algorithms, run by firms with effectively unlimited resources to pursue trading profits?
We could go on about financials for a while. But here's a broader point: there will always be ways to verify a financial transaction -- trade documentation, assets held at custodians, audits from accountants, monthly statements from brokers. Yes, the kid may have provided the reporter with a facsimile of a bank statement. But the absence of proof of winning trades should have been a gigantic red flag.
In short, numbers can be confounding, intimidating, a smoke screen. Sometimes they can get in the way of the basic questions any reporter (or analyst or regulator) needs to ask: Does the story make sense?
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Barry L Ritholtz at firstname.lastname@example.org
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