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Buffett's Alpha (2018) [pdf]

docs.lhpedersen.com

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Re: Buffett's Alpha (2018) [pdf]

#11

Post by lindig »

deepnotderp wrote: post #2

From what I have seen, only certain quant funds like Renaissance Technologies and TGS Management have actually truly managed to beat the market in a consistent non-random manner. And they do exactly what you'd expect someone who has a money making machine to do- shut up and at some point kick out your external investors.

I've read this story about where part of Renaissance Technologies's alpha is coming from: buying and selling individual financial instruments entails paying taxes on the gains of each trade. It's more lucrative to buy and hold a well-performing fund. So allegedly RT advises such a fund what to buy and sell and simply holds it - such that it would only pay taxes once it sells. I'm not working in finance and can't make an informed comment but if true, tax optimisation would be a big part of the success.

Re: Buffett's Alpha (2018) [pdf]

#12

Post by look_lookatme »

melling wrote: post #5
Maledictus wrote: post #4

Earlier quoted context omitted.

Do you have more information about this? I thought "the bank always wins" (or the broker in this case).

Jim Simons https://news.ycombinator.com/item?id=21423845 Maybe Ed Thorp too: https://en.m.wikipedia.org/wiki/Edward_O._Thorp

That comment links to a Youtube video I just watched and it's interesting that he directly confirms that there is an upper bound to the amount of money their model can manage and that they are comfortable limiting the scope of the game as a result. I guess that kind of honesty is easy when you are billionaires making money off your own money.

Re: Buffett's Alpha (2018) [pdf]

#13

Post by codecritic »

lindig wrote: post #11
deepnotderp wrote: post #2

From what I have seen, only certain quant funds like Renaissance Technologies and TGS Management have actually truly managed to beat the market in a consistent non-random manner. And they do exactly what you'd expect someone who has a money making machine to do- shut up and at some point kick out your external investors.

I've read this story about where part of Renaissance Technologies's alpha is coming from: buying and selling individual financial instruments entails paying taxes on the gains of each trade. It's more lucrative to buy and hold a well-performing fund. So allegedly RT advises such a fund what to buy and sell and simply holds it - such that it would only pay taxes once it sells. I'm not working in finance and can't make…

Taxes on trading profits are not paid on each trade. A losing trade cancels out some profits from a winning trade, and tax will be assessed at the aggregate each financial year. Tax optimization contributes to the financial success operationally, but not is a core part of a quant fund's business.

Re: Buffett's Alpha (2018) [pdf]

#14

Post by lindig »

codecritic wrote: post #13
lindig wrote: post #11

Earlier quoted context omitted.

I've read this story about where part of Renaissance Technologies's alpha is coming from: buying and selling individual financial instruments entails paying taxes on the gains of each trade. It's more lucrative to buy and hold a well-performing fund. So allegedly RT advises such a fund what to buy and sell and simply holds it - such that it would only pay taxes once it sells. I'm not working in finance and can't make…

Taxes on trading profits are not paid on each trade. A losing trade cancels out some profits from a winning trade, and tax will be assessed at the aggregate each financial year. Tax optimization contributes to the financial success operationally, but not is a core part of a quant fund's business.

My understanding was that there is a tax advantage (or loophole) in this construct of having influence over a fund's trading rather than doing the trades yourself and holding the fund instead. Would you argue there is no such advantage?

Re: Buffett's Alpha (2018) [pdf]

#15

Post by codecritic »

lindig wrote: post #14
codecritic wrote: post #13

Earlier quoted context omitted.

Taxes on trading profits are not paid on each trade. A losing trade cancels out some profits from a winning trade, and tax will be assessed at the aggregate each financial year. Tax optimization contributes to the financial success operationally, but not is a core part of a quant fund's business.

My understanding was that there is a tax advantage (or loophole) in this construct of having influence over a fund's trading rather than doing the trades yourself and holding the fund instead. Would you argue there is no such advantage?

Yes there is an advantage. US investors could be assessed at long-term rather than short-term capital gain rate by using such type of structures. I simply argue that this is not a core part of a quant fund's business. Any capable hedge fund could hire lawyers to set up such structures.

Re: Buffett's Alpha (2018) [pdf]

#16

Post by bumby »

hummel wrote: post #9
deepnotderp wrote: post #2

From what I have seen, only certain quant funds like Renaissance Technologies and TGS Management have actually truly managed to beat the market in a consistent non-random manner. And they do exactly what you'd expect someone who has a money making machine to do- shut up and at some point kick out your external investors.

If you have 1 billion on spare money, you can easily replicate their "black-boxes" strategies for fun. Some of my ML research work (I work for a hedge fund) points exactly on their trading behaviors and relations with different instruments during the past 25 years. Is not fraud or insider trading, is just everyone involved in the economic world benefits from this, that there is no real incentive to call it fraud. PS:…

What sort of trading behaviors would one be looking at?

Re: Buffett's Alpha (2018) [pdf]

#19

Post by deepnotderp »

Nokinside wrote: post #3
deepnotderp wrote: post #2

From what I have seen, only certain quant funds like Renaissance Technologies and TGS Management have actually truly managed to beat the market in a consistent non-random manner. And they do exactly what you'd expect someone who has a money making machine to do- shut up and at some point kick out your external investors.

Quant trading strategy like Medallion Fund uses don't scale. That's why Warren Buffet has more personal wealth than Medallion Fund has AUM. Outside finance, but similar business is sports betting syndicates. They can make 30-70% yearly return with low volatility. If you bet in 100 events per week and the expected return from each bet is just 0.5% (after expenses) you make consistent 30% return with very low volatilit…

Total aum of all rentech funds is something like 110 billion and they've still managed to keep good returns on it.

Re: Buffett's Alpha (2018) [pdf]

#20

Post by deepnotderp »

phyalow wrote: post #8
melling wrote: post #5

Earlier quoted context omitted.

Jim Simons https://news.ycombinator.com/item?id=21423845 Maybe Ed Thorp too: https://en.m.wikipedia.org/wiki/Edward_O._Thorp

And barely a drop about TGS on the clearnet (aside from some paywalled BBG articles). They are basically the continuation of Ed Thorps business Princeton Newport Partners.

TGS is extremely secretive

https://www.google.com/amp/s/www.cnbc.com/amp/2014/05/09/mys...

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