The result has been an exponential increase in volume that an open-outcry system would not be able to handle, he said. "But," he added, "the old system wouldn't have had a flash crash."
Some things haven't changed, like the ability to identify good companies at cheap valuations, he said. That still is a good money manager's stock, you might say, in trade.
"Trying to identify good companies that are mispriced to find great multicycle investments is an ongoing challenge," he said.
Brooks runs a desk of 12 traders, divided into a large-cap desk and a small/midcap desk. Each trader is responsible for specific product lines and portfolio managers. Their secondary job is to be knowledgeable about particular Standard & Poor's industry sectors, such as health care and energy.
"We utilize the sector responsibility to leverage our knowledge base and help us process information. It also allows our traders to get closer to our analysts," Brooks said. "It's important for traders to retain some ability to be a generalist. It's important to have an awareness of different markets because you'll be supporting and backing each other up."
The traders work closely with the firm's portfolio managers and analysts and "have a keen appreciation of what [the portfolio managers and analysts] are trying to accomplish," Brooks said. "It's important for traders to have a clear sense of mission. It's easy to get in trouble in these markets if you don't have a clear idea of what you are doing."
The firm's turnover is relatively low "and our trades tend to be incremental, but our people have made decisions, so the trading desk wants to be decisive, and we're not afraid to do block trades," said Brooks. "If we buy a stock that we like and it goes lower, our sense is to buy more."
The trading team is not afraid of technology. Trading strategies take in both dark pools and algorithms. "We're going to source liquidity wherever it resides," he said. "Over the years we've tried to have an open mind about chatting with anybody who might provide liquidity or innovation in the marketplace."
"But we're concerned the market has become too complicated. It's cluttered and confusing," he added, with roughly 50 different equity venues, for instance, lit and dark. "We're outsmarting ourselves with all of these different ways to trade. In the spirit of encouraging innovation, we've probably allowed too much competition, and it's time to reassess."
The firm's technology support team has helped address that, by building customized tools "that allow us to source liquidity and navigate the complexity of today's trading environment," Brooks said, declining to elaborate.
