Renaissance Technologies

Basically this. I'll slightly elaborate on why an efficient market is a good thing.

It means that anyone can change money into a different currency without having to worry about being ripped off. There is one exchange rate and you'll be paying that plus a small margin.

It means that anyone can invest in publicly traded companies without having to spend an inordinate amount of time and effort trying to value them. Pension funds would be next to impossible without this. To the extent that the market is efficient, you don't have to worry about the imminent collapse of IBM. If anybody knew, the prices will reflect it even if the rest of the world has no idea why the prices are as they are. (The further markets get from being efficient, the further this gets from being true. Compare investing in the S&P 500 to the shenanigans happening with penny stocks. Be glad that your pension fund gets to invest in the former so it can pass on the latter.)

It means that companies can raise money without too much difficulty. They'll sell a part of themselves, and a legion of quants will give them as fair a price as humanly possible. If the price were unfair, someone could exploit it to make money , correcting the price in the process. Ergo the price will be fair. While this sounds far removed from the welfare of the people, this is what greases the engine that runs the jobs of virtually everyone in the developed world. It also lets people pool risk to try risky but worthwhile things. The impact this has on innovation cannot be overstated.

Of course, I agree with the above poster that finance probably isn't the best place for smart people to spend their lives. I'm just claiming that finance people aren't overpaid, everyone else is ludicrously underpaid.

There is an external record, 13F filings. Every quarter funds above a certain AUM have to disclose to the public their top long equity holdings. I’ve personally analyzed these holdings at my old quant job, they definately trade.

whenever i heard of stuff like this, i think of ligo, the gravitational wave detectors. from what i understand, their signals are just huge amounts of noise, other signals, and then finally the actual signals (gravitational waves) that thy are looking for. but it so happens the gravitational waves is a miniscule amplitude compared to the other signals and noise. so what they do is model all the possible types of noise that is happening in the world, and then they have many models of the type of physical situations that can generate gravitational waves (like a black hole - black hole collision). so they do fancy dsp and filtering and do matches against expected events.

my naive assumption and pure guess would be that a lot of trading schemes looking for patterns do this thing to. they model what shows up as noise and other signals and also model what determines value, and then look for the signals that point to or away from value.

https://www.gw-openscience.org/GW150914data/LOSC_Event_tutor...

This is a really good case for quantitative finance, and it's also really clear, so thanks for both. Consider my perspective changed for the better.

There's still a bit of dissonance in this for me, but it's abstract and strays a bit what you're saying, so don't feel a need to respond: I think, for example, about the friends and acquaintances I have in finance who I've often heard lament about the lack of meaning, utility, and social value in their work despite the good pay. They're smart men and women, every single one, so I'm sure they know they case you're making - so what gives? (This is clearly more a question for them than for you.)

I also wonder idly what proportion of the explosion in the finance industry since the 1970's is taken up by the sorts of plainly beneficial and useful efforts you describe, and what proportion is simply craven, greedy bullshit. Clearly the latter is more salient in the cultural and moral imagination, in no small part because of the Madoffs and the Beskys and the Milkens of the world, not to mention everyone involved in the 08 crisis. That the former isn't as salient makes me think, like, how many Jack Bogles are there for every Gordon Gekko? I know a ton of Gekkos - I went to college with them! - but few Bogles.

The value is that they hire a ton of people with a very low bar. The smartest go into investment research, the next lot go into sales, the next into marketing, the rest into admin.

The effect, I believe, is two-fold: one, these guys are cheap. And two, you don't have to rely on someone's education, you can see if they actually can function in the workplace.

But this places a huge burden on actually being able to train people who aren't particularly intelligent to do a complex job and creating a team-based culture (i.e. where the sum is greater than the parts).

One example of this is Aberdeen Asset Management. They went from one guy in an office to one of the largest asset managers in the UK (and the world) by hiring this way. A big part of their growth came from acquiring firms with lots of lazy Oxbridge types, firing them all, and moving in their low-cost team of guys.

This isn't like what IBs do, it isn't what Jane Street. Both are highly selective, and hire into specific jobs. IBs will do a big training program over a few weeks to get everyone up to speed (i.e. on accounting, whatever) but what I am talking about is 3-month rotations through every part of the business.

HR at IBs hire "geniuses", they hire the best of the best...if you do this, it makes no sense to pay them a big salary and then stick them in the back office (they will probably get poached). Now most of these people aren't actually any good, most will get promoted up to VP because they have been there X years, and then get laid off during a recession...but the hiring culture is totally different (and btw, massively overstates the ability of HR too). And btw, it is semi-efficient because most IBs understand they will end up with a bunch of overpaid turnips...it is worth it to find the next rainmaker (but the rainmaker in asset management never pays off because they get poached).