Better this guy would continue working on algae to finally invent that (definitely possible) strain that would be useful to produce cheap fuel from! He tried to play that eternal zero sum game instead... sad
Hedge Fund Uses Algae to Reap 21% Return
21–30 of 123 posts
Re: Hedge Fund Uses Algae to Reap 21% Return
#22Re: Hedge Fund Uses Algae to Reap 21% Return
#23In 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 there's a question of how many new hedge funds are using machine learning. If you have enough different attempts, one of them will beat the market by sheer game of chance. Picking out their specific quirks afterwards (algae etc.) is just survivor bias.
Re: Hedge Fund Uses Algae to Reap 21% Return
#24It's sad to see people with potential to create worthwhile things, get sucked into zero-sum financial games.
* Not everything financial is zero-sum, but this sounds like it is.
Re: Hedge Fund Uses Algae to Reap 21% Return
#25Slightly off topic:
In the graph hedge funds have performed very badly against the S&P. Given the massive fees a lot of hedge funds charge: what is the incentive?
Re: Hedge Fund Uses Algae to Reap 21% Return
#26Here'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…
This is essentially a certain type of cognitive bias I think (halo effect?), where people take someone's high skill or talent in one area and assume it carries to another field. For example, assuming a chess grandmaster will be good at business strategy, or a great mathematician an automatically great engineer. These examples are convaluted but anecdotally I've seen it in action in recruiting.
Also 'the map is not the territory', all models will be unable to deal with all possible behaviours of the reality they are dealing with in a correct way.
Re: Hedge Fund Uses Algae to Reap 21% Return
#27It's hard to know if the returns are statistically significant given annual returns, but I'm sure he's providing more granular statistics to investors. Kinda annoying how the articles hypes this by distinguishing it from statistical models since he is obviously running some sort of statistical model as well.
In general, people have a poor understanding of how to evaluate an investment manager. It's not enough to just look at absolute returns and compare them to the S&P, you need to correct for market exposure (the beta). Even then, it is not that straightforward: this is one of the best overviews I've seen (the author of the blog, Robert Frey, was a former managing director at Renaissance Technologies, the most successful hedge fund of all time)
http://keplerianfinance.com/2013/07/alpha-and-evaluating-inv...
To make the "correcting for exposure" aspect concrete, suppose you have the opportunity to invest in a poker player that generates a 10% return on capital per year. It wouldn't really make sense to compare this return to the S&P 500 returns, because the beta is very close to 0.
Re: Hedge Fund Uses Algae to Reap 21% Return
#28https://xkcd.com/1831/
Or "data science"
Re: Hedge Fund Uses Algae to Reap 21% Return
#29> As the genome project produced reams of data, Lun saw an opportunity to break ground in computational biology and in 2006 joined the Broad Institute of MIT and Harvard, a crossroads for scientists and hedge fund managers. There Lun met senior computational biologist Nick Patterson, a former cryptographer who had spent a decade at Renaissance Technologies making mathematical models. Another Lun colleague, genomic re…
> A 3 year track record is plenty long enough to prove out a system and provide a track record. It's a troubling sign that there is only $20 million in his fund if.
I'm curious as to why you say a 3 year track record is long enough to prove a system. I don't necessarily disagree (though I think number of trades executed in that timespan and the type of trading strategy might be as important as the timespan itself), but I'm interested in your reasoning.
Re: Hedge Fund Uses Algae to Reap 21% Return
#30Was 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 :-)