Just from eyeballing the chart it looks like they made a few million more than the index, over those five years, which pays for 3ish engineers if they're taking half the performance over index and no management fees.
Hedge Fund Uses Algae to Reap 21% Return
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Re: Hedge Fund Uses Algae to Reap 21% Return
#12Here'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 didn’t work nearly as well as they did in a lab.
Newton’s law of gravity hasn’t changed for eons, Derman said, but human behavior in markets changes all the time, wreaking havoc on even the best models made by scientists.
“I’ve developed a lot of skepticism about anyone bringing their expertise from one field to another,” said Derman, author of the book “Models.Behaving.Badly” and a Columbia University professor of financial engineering. “They say stocks are like atoms, or like genes. But stocks are not atoms or genes. There is a resemblance, but ultimately they are very different.”
Re: Hedge Fund Uses Algae to Reap 21% Return
#13Was 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.
Re: Hedge Fund Uses Algae to Reap 21% Return
#14The article is pretty hyped and low on actual details. From what I can figure out, he used the same models that he used to predict stuff about Algae to predict the market.
No information about what these models are is given. But it seems more "I created a system which can predict cell changes and stock market movements" than "I used Algae to predict the stock market".
Re: Hedge Fund Uses Algae to Reap 21% Return
#15In 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.
I agree, I don't believe this would pass a test for statistical significance (of outperforming the market indices).
Unless there is a way to break this data down much more finely (by 6-day window, by individual asset) in which case it's possible there's a high p-value but low-power effect. Even so, if there are more than 100 experimental firms, a single one with p-value .01 isn't evidence enough to jumping to big conclusions.
Re: Hedge Fund Uses Algae to Reap 21% Return
#16In 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.
Well 1.05x0.85x1.30x1.10x1.00=1.27
Wow, so they are ~27% off the mean!
The part that isn't clear is how this compared to typical performance variation - then we can run our p-tests. But I suspect its pretty good, given the news worthiness of the article.
Re: Hedge Fund Uses Algae to Reap 21% Return
#17In 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.
Also, hasn't been tested under bear market conditions... I'm skeptical that past returns prove future gains here. I can take any small subset of something and say its beating the market.
Re: Hedge Fund Uses Algae to Reap 21% Return
#18A 3 year sample does not prove anything.
A 3 year sample with only one impressive year.
Re: Hedge Fund Uses Algae to Reap 21% Return
#19In 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.
Well 1.05x0.85x1.30x1.10x1.00=1.27 Wow, so they are ~27% off the mean! The part that isn't clear is how this compared to typical performance variation - then we can run our p-tests. But I suspect its pretty good, given the news worthiness of the article.
Wouldn't 1.27^0.2=~1.05 be a better indicator?
Re: Hedge Fund Uses Algae to Reap 21% Return
#20Aside from whether this actually works reliably already or not, from a principal point of view it makes sense that computational biology adds something to the mix.
For the last year I've only been a glorified webdeveloper working for molecular neurobiologists at the Karolinska Institute, but from what I understand it is all about untangling vast quantities of high-dimensional data: data sets of tens to hundreds of thousands of individuals cells, where for each cell the expression levels of tens of thousands of genes are being measured (in what stage of development in which tissue was the cell harvested).
If you can find algorithms that somehow make sense of how these cell populations and genes interact and develop over time, I think it is not out of the question that the same algorithms could make some sense of the aggregate behaviour of the stock market, give a decent data set as input of course. Especially given that most of these algorithms are forms of machine learning, so don't necessarily require an a priori model of what is happening (I mean, if I understand correctly, uncovering that model is precisely what the biologists are after).