Investing is like tech, its winner take all. This is like being surprised that Google dominates search
Only it isn't like that at all.
areas like HFT are
Medallion Fund “Stretches Explanation to the Limit,” Professor Claims
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Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims
#22I'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…
Could they been moving money from their open to investments , less successful funds to the medallion fund? Maybe even thought the market via trades?
Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims
#23How big are the external funds? If they are large enough, it wouldn't be hard (quantitatively) to shave a percent or two off of their returns in bad medallion years to keep the winning streak alive. The inflows inspired by the mystique shrouding medallion alone could make this easy
There are strict regulatory obligations to the outside investors that would make that transfer illegal.
Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims
#24The explanations given in the article are good ones and are said before. Even in HN https://news.ycombinator.com/item?id=13033733
They have a strategy that does not scale beyond certain limit and they keep the fund tightly within those limits.
Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims
#25Earlier quoted context omitted.
If it's so easy and straightforward to return 50% YoY, why aren't there a proliferation of funds doing this?
You might not know how funds work? You don’t try to get the best returns, with quite a bit of risk. You try to get the best returns with zero risk of losing all the money. You get paid 2% + 20% of profits. If you lose all the money you lose your reputation too. If you were levered x3 on the nasdaq in 2001 you would have lost all your money. Heck, even 1.2 would have lost you everything. Ditto 2008. Having all your as…
Yes very possible I don't understand what you are trying to say... I know what leveraged investing is but a lot of the details may be beyond me. This is not my area of expertise.
Correct me if I'm wrong: my understanding is that you're saying that they could have taken a huge risk using a lot of leverage and they didn't lose all their money so they get their 5% + 44% (found this from a Bloomberg article). Essentially they're just the notable outliers and have been for 30 years? If so, that still seems a little far fetched for me.
Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims
#26Earlier 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.
Of course. It’s not an apple to Apple comparison, it’s just to point out those returns are possible. Also, would you rather have invested your salary from 2003 to 2020 not leveraged or always leveraged x3, bust in 2008, and then cash out today? Probably the latter. And that’s pretty consistent. After a recession, you usually have a decade of growth. So not exactly hard to do either.
sure, if I get to assume I'll have a steady salary indefinitely, I would prefer the 3x leverage. in reality, the stability of your job is correlated with the market. if I chose the leverage scenario, my portfolio would be valueless at the exact moment that I was most likely to lose my cashflow. without leverage, I would have taken a big hit, but still have had some money to draw on.
Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims
#27the 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…
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Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims
#28“An overlooked key is ample and cheap leverage,” he added. “You get that by having consistent returns and a crazy-high Sharpe ratio. That, in turn, comes from the firm’s numerous advantages and advances — superior talent, better data, a unique management approach, a focus on mid-frequency trading, a willingness to cap the fund, and more.”
One often contemplates what "more" means. Near slavery of workers, extracting wealth from other funds, or other dubious practices. Often the success of side industries for a company take a back seat to its primary performer. Wouldn't surprise me if this was the case once again. For most trying to obtain vast wealth, the ends justify the means, which is all you have to remember.
Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims
#29How big are the external funds? If they are large enough, it wouldn't be hard (quantitatively) to shave a percent or two off of their returns in bad medallion years to keep the winning streak alive. The inflows inspired by the mystique shrouding medallion alone could make this easy
There are strict regulatory obligations to the outside investors that would make that transfer illegal.
illegal, sure. But let's say there are some very bad actors involved... would it be possible? People have been known to do illegal things in finance and have tried to cover their tracks in the past.
Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims
#30As 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.