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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

#181

Post by scottjg »

DrAwdeOccarim wrote: post #177
thoughtstheseus wrote: post #174

Earlier quoted context omitted.

This is called asset location. Structure where your investments are located to maximize returns.

Right, I didn't think what he was describing was all that risque. What I'm trying to figure out is if there is a way to sell a cash-secured put on a way OTM option from the IRA then buy that put in the taxable account. Then let it expire worthless. Could that transfer money into the IRA and nab a tax loss deduction in the taxable account?

perhaps it's possible through enough layers of indirection to create plausible deniability... but generally this type of transaction would be considered self-dealing, which is illegal.

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

#182

Post by auntienomen »

1024core wrote: post #180
ajay-d wrote: post #96

Earlier quoted context omitted.

That makes a lot of sense. And also explains why the the other funds aren't as 'stellar'. I mean all these quants are in the same company, how is one fund perfect, and the others lackluster.

I believe (not that I know more than anyone else) it's because their own money is invested in the Medallion fund (and not the other funds).

This is wrong. The people at Renaissance have a lot of their money invested in the other two funds. This is one of the main reasons they built the other two funds; they needed a way of managing money that didn't fit in Medallion.

Simons, for example, has a ~$21B fortune, and I doubt he gets more than 1/3rd of Medallion's $10B capacity. He's probably got more money in RIEF than in Medallion.

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

#183

Post by auntienomen »

throwaway2048 wrote: post #111
RookyNumbas wrote: post #103

Earlier quoted context omitted.

This would only explain the performance for the last 10 years. There were no "sucker" funds for the first 20.

How do you know?

The "sucker funds" would have had to be among the largest in the industry, with lots of external investors to provide the capital. You really think something like that would remain completely secret?

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

#184

Post by perl4ever »

scottjg wrote: post #181
DrAwdeOccarim wrote: post #177

Earlier quoted context omitted.

Right, I didn't think what he was describing was all that risque. What I'm trying to figure out is if there is a way to sell a cash-secured put on a way OTM option from the IRA then buy that put in the taxable account. Then let it expire worthless. Could that transfer money into the IRA and nab a tax loss deduction in the taxable account?

perhaps it's possible through enough layers of indirection to create plausible deniability... but generally this type of transaction would be considered self-dealing, which is illegal.

How would you even do it, as a nobody with no connections? You have two accounts and your broker isn't linking them up for you.

Making a sham trade at an arbitrary price with yourself is not what I was describing. My idea was the calls and the puts are as close to at the money as possible, and the counterparties are just random people with no pre-arrangement.

If you're going to simply do fraud, then the constraints don't seem interesting to me.

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

#185

Post by seventytwo »

SamBam wrote: post #63
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…

I'm not sure I understand your suggestion. So there are (simplistically) two funds, Sucker and Winner. They take complementary positions, and, whichever one wins gets transferred to Winner. So far so good. Winner is winning every bet, and Sucker is losing every bet. Now you need people to put money into Sucker, because it has to come out the other end into Winner. How do you convince them to do that? By giving them a…

The winning fund only needs to win 50.01% of the bets to make it work.

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

#186

Post by perl4ever »

hogFeast wrote: post #179
perl4ever wrote: post #173

Earlier quoted context omitted.

"this simplicity is offensive but it is also why most people with technical backgrounds get destroyed by the market" Figuring out things nobody else can is the hard way to achieve. Figuring out what you don't know and never betting on it is an alternative way that doesn't require being a genius.

Just my 2c, and this is more based on my experience academically, almost no-one figures things out that nobody else can. Innovation is largely a combination of circumstance and timing. Some ideas just have their time. Having unrealistic expectations around this is part of the problem (AHL went in thinking they could just hire a bunch of "boffins"...but they are all average, they just have PHds or whatever). I don't t…

Knowing what you don't know doesn't correspond to a level of confidence or humility, in the way I meant it.

You can have low confidence and discount the value of things you know, while still assuming you know things you don't.

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

#187

Post by huffmsa »

papln wrote: post #67
huffmsa wrote: post #51

Earlier quoted context omitted.

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 ~$60…

> Let's say you net +1% on your deployed capital ever day. That's the "..." step in "1 steal underpants, 2 ..., 3 Profit!"

Well yeah. But that's what they've figured out.

It's unlikely, but not impossible.

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

#188

Post by macspoofing »

logicchains wrote: post #62
macspoofing wrote: post #31

Earlier quoted context omitted.

>Renaissance is simply better than anyone in the world at finding the markets where traders are willing to pay the highest premiums for liquidity, and providing it in a timely and measured dose that ensures they skim the cream off the profit opportunity. Why are they better? This still requires the same kind of explanation as 'they are simply better at investing than anyone in the world'

>Why are they better? Possible explanation: there aren't any other firms founded by as great mathematicians as the founders of Renaissance. I saw a quote online attributed to them, something like: "We hire the A-grade mathematicians. Most other firms hire B and C grade mathematicians, and don't even know the A grade exists". This fits my experience, as a D-grade mathematician working in finance. Never heard of signif…

>Possible explanation: there aren't any other firms founded by as great mathematicians as the founders of the Renaissance.

I'm skeptical. There are a lot of smart mathematicians, and given that the incentive is billions in profit, there is no way you can maintain that kind of competitive advantage over decades. Again, we're not talking about a company stumbling on a massively profitable, but undiscovered space. In that case, yes, as a first-mover you'll make billions. But you can't maintain that for decades as others will move in.

The other item that makes it kind of crazy is that nobody actually knows how they are doing it in, even in theory. Take the example of Google's search monopoly. They were one of the first to create a specific kind of search product that led them to billions in profit. Two decades later, they still maintain that competitive lead and the product is still highly profitable, but nobody is confused as to how they actually do it even if only Google knows the nitty-gritty details of the infrastructure or algorithms that back this product up. The Medallion Fund might as well be magic since nobody can explain the mechanism by which they maintain their outlier status.

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

#189

Post by zneveu »

Tycho wrote: post #5

Seems to me there's an obvious flaw in the efficient market hypothesis. It states that, essentially, you can find no sustainable edge because the market rapidly reacts to information. Meaning, if there is some information relevant to expected investment performance, investors will immediately act on it, extinguishing the information advantage. But what if the opportunity is some kind of abstract pattern that doesn't…

As long as there are market regulations, and as long as people have some kind of morals the market will stay a long ways from being perfectly efficient. Any profit-making trade that you can't make because of legal or ethical reasons shows a crack in the efficient market. That may not be a bad thing, but it's so important that we recognize these imperfections and keep them patched so that they're not exploited.

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

#190

Post by thoughtstheseus »

perl4ever wrote: post #184
scottjg wrote: post #181

Earlier quoted context omitted.

perhaps it's possible through enough layers of indirection to create plausible deniability... but generally this type of transaction would be considered self-dealing, which is illegal.

How would you even do it, as a nobody with no connections? You have two accounts and your broker isn't linking them up for you. Making a sham trade at an arbitrary price with yourself is not what I was describing. My idea was the calls and the puts are as close to at the money as possible, and the counterparties are just random people with no pre-arrangement. If you're going to simply do fraud, then the constraints d…

Not directly related but if you create synthetic positions, say you use derivatives to exit a position while still holding the asset you’re supposed to report it as a sale for tax purposes. Complex positions often are not perfectly hedged sometimes to prevent this as the tax benefit exceeds the risk.
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