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Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

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Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#51

Post by huffmsa »

huffmsa wrote: post #34
scottious wrote: post #2

I'm no finance expert but doesn't this all seem way too good to be true? At first I was reading this and thinking "how is this not exactly like Bernie Madoff?" Then they say "The Medallion fund has been closed to external capital since 1993 ... whatever profit they make, they pay out". So clearly it can't be a ponzie scheme? Still, it seems too good to be true. If financial experts are stumped as well then that also…

I don't think they could keep it up for that long without slipping up at least once. Enron started around the same time and got tripped up in 2001. If it were a one man investment shop, then maybe it leans more towards fraud. But if they obviously employ dozens of quants, and have obvious hardware outlays, it seems less likely. It makes a lot of sense to me that they just win a bit more than they lose, play a lot of…

I think I have the math right here, but let's say you start with > Capital = $100

1 time a day 5 days a week 50 weeks a year, you're going to take your capital and place that many $1 bets with it.

Let's say you net +1% on your deployed capital ever day.

After 250 rounds, you have $1215 in the bank.

Again, correct the math if I'm wrong. But scale that down to 0.57%, which is the win rate I saw, and they're making ~$600/yr, which is the stated average return.

Seems legit

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#52

Post by tomatocracy »

smabie wrote: post #40
relham wrote: post #11

Earlier quoted context omitted.

3x levered nasdaq 100 would give you an annual volatility of at least 30-50%, occasionally much much higher. The crazy thing is that medallion presumably achieved this with a very small volatility and no significant drawdowns. Nasdaq 100 was down -42% in 2008, so levered 3x you would be out of business.

3x leverage ETFs rebalance daily, so you would still have some money since the biggest single day loss of Nasdaq is ~10%.

Incidentally this also means that if you buy the etf on day 1 and the underlying is at 100, on day 2 the underlying falls to 99 then on day 3 goes back to 100 then you would be left with less than 100% of what you started with (assuming perfect tracking and no fees).

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#53

Post by fyp »

jjoonathan wrote: post #39

Of the wild theories I've heard to explain the Medallion Fund, my favorite is the "money wormhole." I have no finance qualifications whatsoever -- I just stick my money in index funds -- but I love a good conspiracy theory, so here goes. The idea is that you have two theoretically unrelated funds that take complementary positions with uneven odds. One sacrifices performance for the other, effectively transmitting mon…

It's an interesting idea. You can make two funds sum up to a constant by taking opposite and equal positions.

But I am not seeing how you can control the direction the money moves. For example if you knew fund A will gain $x and fund B will lose $x, shouldn't you simply not make the trade in fund B?

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#54

Post by eigenvalue »

fsckboy wrote: post #20

the magic $10 billion number capping the size of the fund also seems curious because why would it be impervious to change over a period of 25 yrs in which the scale of trading volumes, market capitalization, etc. have all grown? also, groups of people don't perfectly share ideas, outlooks, etc. especially over time. Humans tend to argue, debate, tug of war. If this task (the puzzle they are solving) requires a team o…

I don't believe the size has in fact been constant. I remember reading years ago that Medallion was capped at around $5 billion.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#55

Post by SirLJ »

jjoonathan wrote: post #39

Of the wild theories I've heard to explain the Medallion Fund, my favorite is the "money wormhole." I have no finance qualifications whatsoever -- I just stick my money in index funds -- but I love a good conspiracy theory, so here goes. The idea is that you have two theoretically unrelated funds that take complementary positions with uneven odds. One sacrifices performance for the other, effectively transmitting mon…

The "only" problem with your theory is that the "sucker funds" have to lose 100 billion, which won't go unnoticed by the "suckers"

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#56

Post by papln »

onetimemanytime wrote: post #49
peteradio wrote: post #36

Earlier quoted context omitted.

It could be an incumbent position that is just not possible to overthrow.

Ok, new Medallion-like fund accepts lower returns, meaning its partners get better deals then under Medallion. Why wouldn't they leave Medallion? This is since 1988 apparently. I don't buy that they are the "smartest people" or that they are doing something so amazing that others don't get.

Medallion is for employees of Renaissance. It doesn't have customers/partners. If you accept that Renaissance is good at what it does, it's simple to posit that Renaiisance reserves its most profitable activities for its own employees as preferred customers/partners, as a compensation vehicle and a PR/recruiting tactic to make Renaissance look more impressive. Medallion is like Google's "X", in that sense.

This explanation shows why Medallion's high returns are possible, and also why Medallion not actually better than Renaissance's overall average performance (that is, could not be replicated as an indepdent spin of without the rest of Renaissance to extract value from), beyond an acconting illusion to make ordinary wages look like investing.

It's not at all surprising that this could be how Medallian works, since that's just an application hedging, which is Renaissance's core business.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#57

Post by papln »

onetimemanytime wrote: post #30
jkhdigital wrote: post #19

As the article hints at, Medallion isn't really an investment fund so much as a pool of capital which is employed in the business of providing tactical liquidity to markets. This is a business where one's competitive advantage rests upon their technological advantage, and Renaissance has been exceptionally adept at building and maintaining that advantage. The EMH is a theoretical concept that must be tempered to acco…

Maybe...still 66% every single year for 20+ years is odd. Since there's so much money involved, nothing stops funds to invest tens of billions to duplicate their success.

In any investing environment, the tactic with the best returns are only available up to some limit of invested money before the "raw material" is consumed.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#58

Post by SirLJ »

thomak wrote: post #9
scottious wrote: post #2

I'm no finance expert but doesn't this all seem way too good to be true? At first I was reading this and thinking "how is this not exactly like Bernie Madoff?" Then they say "The Medallion fund has been closed to external capital since 1993 ... whatever profit they make, they pay out". So clearly it can't be a ponzie scheme? Still, it seems too good to be true. If financial experts are stumped as well then that also…

Financial experts aren’t stumped. The article found one guy who’s trying to get attention, but in general, folks are both impressed and pretty sure it’s real.

This was no expert, but an academic... those who can't do, teach...

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#59

Post by ceejayoz »

SirLJ wrote: post #55
jjoonathan wrote: post #39

Of the wild theories I've heard to explain the Medallion Fund, my favorite is the "money wormhole." I have no finance qualifications whatsoever -- I just stick my money in index funds -- but I love a good conspiracy theory, so here goes. The idea is that you have two theoretically unrelated funds that take complementary positions with uneven odds. One sacrifices performance for the other, effectively transmitting mon…

The "only" problem with your theory is that the "sucker funds" have to lose 100 billion, which won't go unnoticed by the "suckers"

Do they have to lose $100B, or just underperform?

People have accepted 2% fees on managed funds despite underperforming an index fund for decades.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#60

Post by hash872 »

>Robert Mercer, the former co–chief executive of Renaissance Technologies, allegedly told a friend that Medallion was right 50.75 percent of the time when it came to its millions of trades — adding that “you can make billions that way.”

Totally not a finance guy, but how can this be true with drawdowns? The losses are worse than the gains- if you had $100 and take a 33% loss, it would take a bit more than a 50% gain to get back to where you were. 50% loss and you'd need to double your money to get back, etc.

So.... with drawdowns, don't you need to be right more than 50.75% of the time?

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