theatlantic | I was a senior in high school, and I was staring at NBA legend Red
Auerbach. He'd coached the Boston Celtics to nine championships in 10
years, won seven more as an executive, and, a bit less notably, gotten
his first coaching job at our school way back when. He was 85 years old, but he lived nearby and had finally agreed to come back to be feted.
We piled into the gym and buzzed as Auerbach ascended the make-shift
stage at center court. There were introductions and congratulations and
then it was his turn to talk. He was old, but still sharp. He regaled us
with an embellished, if not apocryphal, story about how his proudest
coaching victory had come at our school. That was back in 1941, and the
score had been something like 10 to 8. There was also something about
yelling at the son of a senator—this was a preppy, all-boys school in
Washington D.C.—for trying an around-the-back pass.
Then Auerbach turned to life lessons. "Everybody always asks me how
to gain a competitive edge," he said, "and I'm always surprised because
the answer is so obvious." Eighteen-year old me knew where this was
going. He was going to tell us to work hard, that successful people
prepare for their luck, yada, yada, yada.
"You cheat."
Our teachers looked confused, then horrified. They kept waiting for Auerbach to say he was just kidding, that of course
there's no substitute for hard work. He didn't. Instead, he calmly
explained that if you're playing a better fast-breaking team, you should
install nets so tight that the ball gets stuck. Or if you're playing a
faster baseball team, you should water the basepaths till they turn into
muddy quagmires that nobody can run on. But most of all, he wanted to
make sure we didn't misunderstand him. He cleared his throat, and said,
"So, if you want a competitive edge, just cheat." Then he walked off
stage, and the mayor's mother, who was inexplicably there, led us in a
solemn rendition of America the Beautiful.
That brings us to high-frequency trading (HFT) hedge funds. These
funds use computer algorithms—a.k.a.: algobots—to buy and sell stocks at
incredible speeds. We're talking milliseconds. The idea is to
react to any market news or inefficiencies before actual humans can
process them. And it's any idea that has taken over stock trading: algobots make up about half of all stock transactions in 2012 (which is actually down from its peak of 61 percent).
