Question for investing people.. say I started a hedge fund, put all the money in vanguard to achieve s&p500 benchmark return, then once a year did an options bet with a roughly 97 percent chance of a 3 percent return and a 3 percent chance of ruin. I do this for 10 years, outperformng the s&p 500 by 3 percent consistently. I have 70 percent odds of not being ruined, and I consistent outperform most hedge funds. I have good alpha and there is no way to see that my beta ain't great. Would I become a wealthy hedge fund manager?
Hedge Fund Uses Algae to Reap 21% Return
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Re: Hedge Fund Uses Algae to Reap 21% Return
#92Question for investing people.. say I started a hedge fund, put all the money in vanguard to achieve s&p500 benchmark return, then once a year did an options bet with a roughly 97 percent chance of a 3 percent return and a 3 percent chance of ruin. I do this for 10 years, outperformng the s&p 500 by 3 percent consistently. I have 70 percent odds of not being ruined, and I consistent outperform most hedge funds. I hav…
I love that kind of thought experiment! In practice, at hedge fund scale, no one is going to sell you options with that risk/reward profile I think.
Re: Hedge Fund Uses Algae to Reap 21% Return
#93Moral of the story... Just buy $SPY[1] or $BRK.B[2] and sit back. Hedge funds struggle to beat or even match the S&P.
[1] - https://www.google.com/finance?chdnp=0&chdd=0&chds=0&chdv=1&...
[2] - https://www.google.com/finance?chdnp=0&chdd=0&chds=0&chdv=1&...
Re: Hedge Fund Uses Algae to Reap 21% Return
#94Question for investing people.. say I started a hedge fund, put all the money in vanguard to achieve s&p500 benchmark return, then once a year did an options bet with a roughly 97 percent chance of a 3 percent return and a 3 percent chance of ruin. I do this for 10 years, outperformng the s&p 500 by 3 percent consistently. I have 70 percent odds of not being ruined, and I consistent outperform most hedge funds. I hav…
It's a good strategy, if you can afford not to withdraw from the fund on the year (and for several years after) you 97% bet turns sour - there was an article somewhere, which showed that options on S&P singe the great depression almost a hundred years ago, would have only slightly outperformed the index, due to losing in the bear market.
Re: Hedge Fund Uses Algae to Reap 21% Return
#95Can someone point me to a more technical description of the methods he uses?
It probably doesn't exist. Most funds of this type are very very paranoid about publicizing the methods they use because 1. Another firm could exploit what they are doing. 2. Another firm could trade the signal and remove their ability to profit. 3. They think being opaque makes them cool and mysterious. Which it does.
I was hoping it would be part of a larger family of methods some of which would be public.
Re: Hedge Fund Uses Algae to Reap 21% Return
#96Earlier quoted context omitted.
I don't think the cognitive bias you're describing matches this scenario very well, because that bias appears to result when people don't acknowledge specialization versus overall intelligence. Your first example seems like it maps well to that cognitive bias - someone assumes that a chess grandmaster has catch-all capability because they demonstrated expertise in one area, and then they flare out in an orthogonal ar…
And yet: http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/
1. That doesn't meaningfully respond to my point about cross pollinating skillsets, because we aren't distinguishing between amateurs, novices who become professionaks after expertise in other fields, and core professionals in finance/economics.
2. That bet is paraded more than it should be. Buffett bet against a "fund of funds", which is the aggregate performance of the industry. We didn't need a decade long bet to tell us most hedge funds are a poor return of capital, just as we don't need a bet to realize that the greatest n participants in many fields are mediocre.
I would have gladly taken that bet with Buffett and won if I could have chosen a single firm. But Buffett wouldn't have taken that bet, because (to his credit) he understands this point already as a savvy investor. The bet proves that the industry overall is mediocre, but it says nothing about the top firms that mostly don't even take outside capital anymore because they're so successful.
Re: Hedge Fund Uses Algae to Reap 21% Return
#97They are overthinking this... with sufficiently low latency to your exchange, all your "quant"(and I use this term loosely) needs to do is watch the order book. When either side's inside bid/ask is about to crack, you join the opposing side with a market order, and place a stop on the next tick in your direction.
This is what 99.99% of consistently profitable quants do. It's boring, unexciting, and VERY profitable. The crux is...you must have that low latency connection to the exchange, and you must have priority routing for your orders. Bonus point if you have market maker status(but if you have that, why are you doing this in the first place?).
The deep learning craze seems to be infiltrating the minds of a few algorithmic funds, but it doesn't stay long(either they stop trying it, or they blow up their fund). Positions of any reasonable size(such as that required to move the market) are opened by human beings. Human beings operate on emotion and mob mentality in the market, so that is what you capitalize on when designing your algorithm.
Disclaimer: I'm looking at this with an ultra short term timeframe, such as 5-15 seconds being the maximum time in market per position. If these guys are targeting longer term positions, then all bets are off. The algorithms I create and maintain work in this timeframe, and the majority of my competitors algorithms are in the same timeframe.
Re: Hedge Fund Uses Algae to Reap 21% Return
#98Question for investing people.. say I started a hedge fund, put all the money in vanguard to achieve s&p500 benchmark return, then once a year did an options bet with a roughly 97 percent chance of a 3 percent return and a 3 percent chance of ruin. I do this for 10 years, outperformng the s&p 500 by 3 percent consistently. I have 70 percent odds of not being ruined, and I consistent outperform most hedge funds. I hav…
I love that kind of thought experiment! In practice, at hedge fund scale, no one is going to sell you options with that risk/reward profile I think.
There are ways to achieve this though - using a martingale betting strategy where you take small, high risk bets and basically keep doubling up until you win or bust, you can achieve the same risk-reward profile on most high risk markets
Re: Hedge Fund Uses Algae to Reap 21% Return
#99> As the genome project produced reams of data, Lun saw an opportunity to break ground in computational biology and in 2006 joined the Broad Institute of MIT and Harvard, a crossroads for scientists and hedge fund managers. There Lun met senior computational biologist Nick Patterson, a former cryptographer who had spent a decade at Renaissance Technologies making mathematical models. Another Lun colleague, genomic re…
The best hedge funds should be 2x the SPY... It would beat every body. However, clients won't pay for this. People spend so much effort and don't beat the market, but clients want people to work on stuff...
Re: Hedge Fund Uses Algae to Reap 21% Return
#100Earlier quoted context omitted.
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?
It's disputed: https://en.wikipedia.org/wiki/Efficient-market_hypothesis