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Hedge Fund Uses Algae to Reap 21% Return

bloomberg.com

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Re: Hedge Fund Uses Algae to Reap 21% Return

#111

Post by ice109 »

frgtpsswrdlame wrote: post #12

Here's the important part of the article: There are skeptics, too. Emanuel Derman, who was among the first physicists to work on Wall Street, doubts that biologists possess secret sauce for investing. Derman rose to lead the quant risk strategies group in his 17 years at Goldman Sachs Group Inc. He found that as physicists applied their expertise of the laws of motion, atoms and mathematics to investing, their models…

I asked derman what an alternative would be to the formal models quants use now and his answer was that the whole thing should just be left up to "smart people and their gut instincts". the problem is that as soon as these smart people's gut instincts fail (which they will) and they try to investigate why you'll be right back to formal models. derman strikes me as just a guy trying to sell books.

Re: Hedge Fund Uses Algae to Reap 21% Return

#112

Post by ice109 »

huac wrote: post #32
habosa wrote: post #4

In the chart, this is how the fund has compared to an S&P index over the past 5 years: * 2013 - 5% over * 2014 - 15% under (and negative overall) * 2015 - 30% over * 2016 - 10% over * 2017 - About even One exceptionally strong year, and pretty uneven otherwise. Hardly proof that these biology-derived algorithms are the secret to market-beating returns.

We have no idea what the beta of the fund is; it's difficult to talk about performance without knowledge of the fund's underlying risk The other problem is scale - this is pretty evidently an advertising attempt in order to raise more cash. It's a lot easier to return 20% on, say, $100M AUM than it is on $1B AUM. To be fair -- these caveats are true for almost every fund you hear about. I do think that's kind of my b…

I don't understand why 100 mil aum is different from 1 bill aum. couldn't you just divide the billion amongst 10 groups that are Chinese walled from each other? then there'd be no problems of market moving or depth or anything.

Re: Hedge Fund Uses Algae to Reap 21% Return

#113

Post by superlopuh »

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 :-)

Something like this would have been perfect: https://www.wired.com/2010/01/slime-mold-grows-network-just-...

Re: Hedge Fund Uses Algae to Reap 21% Return

#114

Post by huac »

ice109 wrote: post #112
huac wrote: post #32

Earlier quoted context omitted.

We have no idea what the beta of the fund is; it's difficult to talk about performance without knowledge of the fund's underlying risk The other problem is scale - this is pretty evidently an advertising attempt in order to raise more cash. It's a lot easier to return 20% on, say, $100M AUM than it is on $1B AUM. To be fair -- these caveats are true for almost every fund you hear about. I do think that's kind of my b…

I don't understand why 100 mil aum is different from 1 bill aum. couldn't you just divide the billion amongst 10 groups that are Chinese walled from each other? then there'd be no problems of market moving or depth or anything.

Your strategy means that you need 10x more working algorithms. Harder to find 10 than 1.

Re: Hedge Fund Uses Algae to Reap 21% Return

#115

Post by mathperson »

joelthelion wrote: post #95
mathperson wrote: post #61

Earlier quoted context omitted.

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.

Ah I see. There is typically gossip on quant blogs? Like Wilmott and Nuclear Phynance. That might help. Or you can look at

1. Options/Futures etc by Hull

Re: Hedge Fund Uses Algae to Reap 21% Return

#116

Post by gaius »

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.

See http://www.independent.co.uk/news/business/comment/simon-eng...

Re: Hedge Fund Uses Algae to Reap 21% Return

#117

Post by geezerjay »

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.

> Apparently deep-learning and algae are the same thing.

That's perhaps the most annoying thing about "machine learning" in general and heuristic algorithms in particular.

These researchers hack together some rules to put together an algorithm, and only after that does the real work start: to come up with a metaphor to explain their model based on some clever story on why they decided to generate random sample points or filter training points.

In the end, the whole field starts to look like a bullshitter's ball, where everyone tries to one-up each other with the biggest bullshit metaphor to sell their an algorithm which is actually only a very minor tweak on an established age-old concept.

"We use particle swarms to generate new solutions, which are then genetically modified and subjected to a darwinian-inspired differential-evolution filter, who are then analised based on the behavior manifested by wolfpacks to search and hunt for their prey, and whose sub-optimal solutions are eliminated by following nature's resource-exhaustion megakill phenomena."

Bullshit all around, but it sells.

Re: Hedge Fund Uses Algae to Reap 21% Return

#118

Post by computerex »

dsacco wrote: post #96
computerex wrote: post #90

Earlier quoted context omitted.

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…

I was being cheeky when I responded to you. I agree with you on the first point.

But I think you are downplaying the significance of the bet. If it was an obvious wash like you are making it seem then why was the bet even placed? What top firms are you talking about?

Re: Hedge Fund Uses Algae to Reap 21% Return

#119

Post by dsacco »

computerex wrote: post #118
dsacco wrote: post #96

Earlier quoted context omitted.

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…

I was being cheeky when I responded to you. I agree with you on the first point. But I think you are downplaying the significance of the bet. If it was an obvious wash like you are making it seem then why was the bet even placed? What top firms are you talking about?

1. The bet was placed because Buffett's thesis is fundamentally true - you have much better odds of receiving a good return through passive index fund investing than you do through active management. However, this bet is often used (unempirically, though not necessarily strictly inaccurately) to justify the idea that active management cannot beat the market consistently.

2. Firms like Baupost or RenTec would have handily won that bet against Buffett. But like I said, Buffett wouldn't have made that bet, because Buffett is a smart better and already knows all of this. Buffett has never argued that the market is perfectly efficient and resistant to alpha harvesting; in fact, he has publicly taken the opposite position in letters to shareholders.

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