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Hedge Fund Uses Algae to Reap 21% Return

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Re: Hedge Fund Uses Algae to Reap 21% Return

#71

Post by Bartweiss »

dsacco wrote: post #55
Bartweiss wrote: post #51

Earlier quoted context omitted.

It seems like you could probably insure some great press coverage by starting several funds with wild-ass prediction mechanisms that don't change much. As long as you pick enough investments to roughly mirror the market, you can spin all the winners as incredible breakthrough techniques.

If the winning techniques continue to generate greater risk-adjusted returns than the market for a significant amount of time, you haven't really bypassed the whole, "finding alpha" bit. Unless of course you've spun up a truly absurd number of funds, but I'd find that harder to believe than just beating the market in the first place given the capital requirements. "Fuzzing" for alpha that way would be really ineffici…

I think I was a little unclear. I'm not actually proposing fuzzing alpha, just capitalizing on survivor bias. Basically my idea was that if you're going to spin up a 'normal' managed fund, you'll average tracking the market, with some chance of success or failure beyond that.

If that's all you're doing, you might as well go all-out on claiming to have secret sauce that produces your alpha. I'm not expecting you'll get any, just that you might as well have a media-friendly way of picking if you don't have an actually useful one.

Re: Hedge Fund Uses Algae to Reap 21% Return

#72

Post by thablackbull »

anovikov wrote: post #21

Better this guy would continue working on algae to finally invent that (definitely possible) strain that would be useful to produce cheap fuel from! He tried to play that eternal zero sum game instead... sad

It sounds like he is doing both (managing investments and doing research) simultaneously. From the article,

> Lun, who was born in Hong Kong, splits his time between his firm in Pennsylvania and lab at Rutgers, where he’s undertaken an ambitious long-term project: creating computer models that predict how cells behave, using data from blue-green algae and other sources. The models allow Lun to re-engineer genes for useful purposes: he has modified E. coli for production of bio-fuel for transportation.

Re: Hedge Fund Uses Algae to Reap 21% Return

#73

Post by jedberg »

Bartweiss wrote: post #51
Moshe_Silnorin wrote: post #39

Earlier quoted context omitted.

Also the selection effect of us just being aware of it.

It seems like you could probably insure some great press coverage by starting several funds with wild-ass prediction mechanisms that don't change much. As long as you pick enough investments to roughly mirror the market, you can spin all the winners as incredible breakthrough techniques.

Heh, it's like that scam where you email people your predictions for who will win each football game for a particular team, where different groups get different winners. Each week some of the emails are right and some are wrong. After six weeks, 1.5% of your original folks will have seen six correct predictions, at which point you ask them for $1000 to see the 7th prediction which they are likely to pay for since "you're so accurate!".

Re: Hedge Fund Uses Algae to Reap 21% Return

#74

Post by zeteo »

dsacco wrote: post #69
zeteo wrote: post #60

Earlier quoted context omitted.

Get 25 monkeys to throw darts at S&P 500 stock symbols on January 1st of each year. The chance that at least one monkey outperforms 5 years in a row is about 55%. (The target areas need to be proportional to market capitalization etc.)

That's if you have one trade per year. How would you model this if you have 25 monkeys throwing, say, 300 darts at the board per day, for every day that the market is open (252 days), for five years? If you're going to quantify survivorship bias, you can't use entire years as data points, because that doesn't properly represent the amount of activity that occurs. We should reason about each event, because if consiste…

> That's if you have one trade per year. How would you model this if you have 25 monkeys throwing, say, 300 darts at the board per day, for every day that the market is open (252 days), for five years?

If the data is reported on a yearly basis then it's pretty much the same thing.

Re: Hedge Fund Uses Algae to Reap 21% Return

#75

Post by ZeroCool2u »

makmanalp wrote: post #30
platz wrote: post #13

Was disappointed because title is misleading; I had hoped the fund was using actual Algae (i.e. computation in biological medium) to produce market decisions. Instead it is just biologists that are creating algos with their existing machine-learning knowledge. Apparently deep-learning and algae are the same thing.

I was hoping that it like that situation when Caligula replaced a senator with a horse, but rather the hedge fund replaced quants with algae :-)

Okay, I know you're joking, but this is exactly how I interpreted the title and I was so excited to see a picture of some suits staring at some green water and trying to read it like tea leaves.

Re: Hedge Fund Uses Algae to Reap 21% Return

#76

Post by dsacco »

zeteo wrote: post #74
dsacco wrote: post #69

Earlier quoted context omitted.

That's if you have one trade per year. How would you model this if you have 25 monkeys throwing, say, 300 darts at the board per day, for every day that the market is open (252 days), for five years? If you're going to quantify survivorship bias, you can't use entire years as data points, because that doesn't properly represent the amount of activity that occurs. We should reason about each event, because if consiste…

> That's if you have one trade per year. How would you model this if you have 25 monkeys throwing, say, 300 darts at the board per day, for every day that the market is open (252 days), for five years? If the data is reported on a yearly basis then it's pretty much the same thing.

No it isn't, because each firm doesn't have a 50% chance of beating the market each year. Unless you're postulating that that is the case, it's not at all the same.

I can quibble about the odds of each individual trade resulting in profit or less being binary, but for the sake of argument it'll do. But a 50% chance of beating the market each year isn't supported by anything.

The grouping of data reporting doesn't suggest anything about the underlying data if it doesn't also share the same probability distribution. The trades are the events which determine if a fund will outperform on an annual basis, and we can group those trades by day, week, month, year, etc.

Re: Hedge Fund Uses Algae to Reap 21% Return

#77

Post by BeetleB »

dsacco wrote: post #57
computerex wrote: post #2

A 3 year sample does not prove anything.

Not if you group all trading events into single data points by year it doesn't, but that's a silly way of analyzing them if you have extraordinary performance consistency on a day by day (or trade by trade!) basis.

In the end, all that we care about is the effective annual rate of return. It doesn't matter if you did 200 trades that year or 1 - the money is the same if you have the same RoR.

The number of data points is important when looking for trends, or for cleanness of data. However, they're not showing us the data. It could be hugely volatile, or fairly linear.

Re: Hedge Fund Uses Algae to Reap 21% Return

#79

Post by Bartweiss »

jedberg wrote: post #73
Bartweiss wrote: post #51

Earlier quoted context omitted.

It seems like you could probably insure some great press coverage by starting several funds with wild-ass prediction mechanisms that don't change much. As long as you pick enough investments to roughly mirror the market, you can spin all the winners as incredible breakthrough techniques.

Heh, it's like that scam where you email people your predictions for who will win each football game for a particular team, where different groups get different winners. Each week some of the emails are right and some are wrong. After six weeks, 1.5% of your original folks will have seen six correct predictions, at which point you ask them for $1000 to see the 7th prediction which they are likely to pay for since "yo…

Hah, that's excellent! I'd never heard of that specific trick, but survivor bias does seem like one of the best ways to fool scam-aware people into trusting you.

Re: Hedge Fund Uses Algae to Reap 21% Return

#80

Post by vikascoder »

Bartweiss wrote: post #52
makmanalp wrote: post #30

Earlier quoted context omitted.

I was hoping that it like that situation when Caligula replaced a senator with a horse, but rather the hedge fund replaced quants with algae :-)

Didn't the monkey win when they tried that instead? I'm holding out for a 4-way contest of quant, horse, monkey, and algae. I won't be betting on the winner, either.

isnt there already research to show that the stock and bond market behaviours are theoretically impossible to predict?
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