My first understanding of the power of influence came as a 21 year old at 1 New York Plaza, New York City. During a job interview with a sales trader at Goldman Sachs, I remember him telling me the most frustrating thing about his job was that as soon as GS showed up in the queue to buy, the stock would instantly move higher.
His job was to buy stock for an institutional client at the lowest price possible. But because GS was one of the most powerful investment banks at the time, other traders would instantly try and front-run a GS order.
The thinking always went like this: If GS is selling, we should probably sell as quickly as possible because they probably know something we don’t know and vice versa.
Due to the constant front-running, algorithmic trading and dark pools were created to obfuscate large buyers and sellers. When there was simply too much stock a client wanted to offload, an investment bank would act as a principal, buying the stock at a discount in hopes of re-selling the stock to other clients at a premium. With enough discretion, taking such risk often paid off. But sometimes, the bank would get slaughtered due to loose lips.
Nowadays, the most common example of influence lies in an announcement that XYZ famous investor took a stake in ABC stock. For example, whenever Warren Buffet says he bought something, you can be sure the stock will jump several percentage points. The only way you can really get an edge is to buy Berkshire…