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How Ray Dalio built the world’s richest and strangest hedge fund (2011)

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Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#11

Post by quinnchr »

melling wrote: post #7
ImTalking wrote: post #6

Earlier quoted context omitted.

The market is random and unpredictable when it's random and unpredictable. And it's the opposite when it's the opposite. There will always be a small segment of traders who will do well. Doesn't mean that they are the Oracle of Delphi. It just means that, in a large enough sampling, the probability of those people existing is not zero. There is nothing in HFT that supports an argument of predictability unless you are…

Dr James Simons says the market isn't random. https://en.m.wikipedia.org/wiki/James_Harris_Simons https://www.ted.com/talks/jim_simons_a_rare_interview_with_t... Now I'm not sure who to believe, some random guy on the Internet, or a mathematcian who has consistently beat the market.

And yet Mandelbrot thought the market was random.

Now I'm not sure who to believe, one of the most important mathematicians in the last 50 years, or a dude who left the academic community to start a hedge fund.

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#12

Post by bosma »

quinnchr wrote: post #11
melling wrote: post #7

Earlier quoted context omitted.

Dr James Simons says the market isn't random. https://en.m.wikipedia.org/wiki/James_Harris_Simons https://www.ted.com/talks/jim_simons_a_rare_interview_with_t... Now I'm not sure who to believe, some random guy on the Internet, or a mathematcian who has consistently beat the market.

And yet Mandelbrot thought the market was random. Now I'm not sure who to believe, one of the most important mathematicians in the last 50 years, or a dude who left the academic community to start a hedge fund.

Mandelbrot did not think the markets were random. He explicitly rejected the Efficient Market Hypothesis.

http://www.amazon.com/Mis-behavior-Markets-Benoit-Mandelbrot...

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#13

Post by bosma »

Xcelerate wrote: post #8
ImTalking wrote: post #4

All investment funds are a charade. The probability that a firm like Bridgewater exists with higher than average returns is not zero. Nothing about Bridgewater would indicate that they somehow 'get it' whilst the other funds don't. It's strictly probability, or more accurately, it's strictly a bell-curve.

I'm not sure why you got downvoted. Survivorship bias is a well-known phenomenon. I would be interested in distinguishing between hedge funds that do well because some "necessarily must" and those that actually have some kind of advantage with their algorithms. But how can you actually tell which is the case?

I recommend the book "More Money Than God" which studies the history of hedge funds and in the end suggests that successful hedge funds are not simply statistical survivors.

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#14

Post by adnzzzzZ »

Wonnk13 wrote: post #9

Whatever "culture" of radical honesty they have does not translate at all to other workplaces. My first experience with an ex-BW manager left me crying at the coffee machine all afternoon. just my n=1 anecdote.

I think they understand this. See the first minute of this video https://www.youtube.com/watch?v=ABB1pfi3ZpE

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#15

Post by quinnchr »

bosma wrote: post #12
quinnchr wrote: post #11

Earlier quoted context omitted.

And yet Mandelbrot thought the market was random. Now I'm not sure who to believe, one of the most important mathematicians in the last 50 years, or a dude who left the academic community to start a hedge fund.

Mandelbrot did not think the markets were random. He explicitly rejected the Efficient Market Hypothesis. http://www.amazon.com/Mis-behavior-Markets-Benoit-Mandelbrot...

Maybe I'm missing something, but how are randomness and the emh related?

AFAIK random walk theory assumes the market is unpredictable and is consistent with the emh while other theories like the adaptive market hypothesis assume the opposite and are still consistent with emh.

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#16

Post by mason55 »

ImTalking wrote: post #10
Xcelerate wrote: post #8

Earlier quoted context omitted.

I'm not sure why you got downvoted. Survivorship bias is a well-known phenomenon. I would be interested in distinguishing between hedge funds that do well because some "necessarily must" and those that actually have some kind of advantage with their algorithms. But how can you actually tell which is the case?

I don't think you can. If on every trade you flip a coin, but intelligently limit your losses and ride your wins, you will beat every fund-manager on the planet. Nothing to do with smarts or algorithms. And even if you have good risk management, if you trade long enough, there will always be the perfect-storm 'meltdown' scenario. However, as I originally said, it's all probability and there will be a small group of m…

> If on every trade you flip a coin, but intelligently limit your losses and ride your wins

What does this mean? Sounds like gambler's fallacy combined with a Martingale system

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#17

Post by ImTalking »

melling wrote: post #7
ImTalking wrote: post #6

Earlier quoted context omitted.

The market is random and unpredictable when it's random and unpredictable. And it's the opposite when it's the opposite. There will always be a small segment of traders who will do well. Doesn't mean that they are the Oracle of Delphi. It just means that, in a large enough sampling, the probability of those people existing is not zero. There is nothing in HFT that supports an argument of predictability unless you are…

Dr James Simons says the market isn't random. https://en.m.wikipedia.org/wiki/James_Harris_Simons https://www.ted.com/talks/jim_simons_a_rare_interview_with_t... Now I'm not sure who to believe, some random guy on the Internet, or a mathematcian who has consistently beat the market.

IMO, the market is only non-random due to trader herd-mentality. Everyone using the same software, same algorithms, trend-analysis, etc. If everyone's software says that this particular point is a resistance/support level, then the market will potentially move because of this. But this strategy of waiting-for-the-dumb-traders-to-make-their-move has been practised for decades. But a single random event will invalidate all this herd-mentality in a second. And plus, from your Wiki link, it states: "[Simon's] models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions". I don't see that as being earth-shattering considering that random events occur constantly. And how do they know the movements are non-random?

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#18

Post by ImTalking »

mason55 wrote: post #16
ImTalking wrote: post #10

Earlier quoted context omitted.

I don't think you can. If on every trade you flip a coin, but intelligently limit your losses and ride your wins, you will beat every fund-manager on the planet. Nothing to do with smarts or algorithms. And even if you have good risk management, if you trade long enough, there will always be the perfect-storm 'meltdown' scenario. However, as I originally said, it's all probability and there will be a small group of m…

> If on every trade you flip a coin, but intelligently limit your losses and ride your wins What does this mean? Sounds like gambler's fallacy combined with a Martingale system

Flip a coin... heads you go long, tails you go short. Limit your losses and ride the wins. You'll kill the market (until a perfect-storm meltdown event, of course). Nothing to do with Martingale.

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#19

Post by TheOtherHobbes »

quinnchr wrote: post #15
bosma wrote: post #12

Earlier quoted context omitted.

Mandelbrot did not think the markets were random. He explicitly rejected the Efficient Market Hypothesis. http://www.amazon.com/Mis-behavior-Markets-Benoit-Mandelbrot...

Maybe I'm missing something, but how are randomness and the emh related? AFAIK random walk theory assumes the market is unpredictable and is consistent with the emh while other theories like the adaptive market hypothesis assume the opposite and are still consistent with emh.

If the EMH were true, price curves would always display maximum entropy, i.e. randomness, because there would be no spare redundant information that could be used to make predictions about the future. (This is based on Shannon's Communications Theory, but the maximal entropy bound applies to any system that mixes a predictable signal with random noise.)

It doesn't matter if you use an evolutionary explanation for price curves, as in AMH, or claim they're controlled by planetary alignments - because the prediction that price curves show maximum entropy is falsifiable regardless of possible causes.

And when it's tested, it is indeed falsified. See e.g.

http://www.turingfinance.com/hacking-the-random-walk-hypothe...

tl;dr There are standard tools for estimating entropy, and they all agree that markets aren't truly random. Therefore they can't be maximally efficient.

Quants make a living by mining the signal from the randomness. There's a lot of debate about the best way to do this, but there's no serious disagreement among quants that it's possible - and the people who make money by employing them tend to agree.

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#20

Post by [deleted] »

imaginenore wrote: post #5
ImTalking wrote: post #4

All investment funds are a charade. The probability that a firm like Bridgewater exists with higher than average returns is not zero. Nothing about Bridgewater would indicate that they somehow 'get it' whilst the other funds don't. It's strictly probability, or more accurately, it's strictly a bell-curve.

Your conclusion is based on the assumption that the market is completely random and unpredictable. Which is demonstrably not true - high frequency trading, insider trading, general predictable events that affect the market.

[deleted]
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