> But in the four months since it began trading on June 1, Quantopian’s traders have lost about 3%, according to people close to the matter. The S&P 500 rose 6.6% in that period.
It's still way to early to be worried about the fund but to be fair, its been a good time for most quantitative funds. And the space that I imagine Quantopian is competing in, factor based models for US Equities, is a very crowded space right now.
I'm sure having a flagship fund was an important project for the company I'm reminded of the Paul Graham story where he tells Jerry Yang his idea for selling ads and then realized when Jerry told him no that yahoo was already selling ads for more than they were worth.
I'm wondering if there is a parallel here with quantopian where they were better off letting people think that they could beat the market with a factor based model, rather than actually starting a fund and showing their users how tough it really is.
> Still, Quantopian manages about $50 million in a hedge fund, a tiny amount in that world and well below the $250 million executives anticipated at the end of this year
This might work in their favour.
The difference in the management fee doesn't translate into alot of money and its much easier to manage a sub $100 million fund than it is to run a $250 million dollar fund. Especially for one that is just starting out and doesn't appear to have found their secret sauce just yet.
The problem is that there is no other really scalable revenue play for a product like Quantopian other than starting a fund. They could try and charge people for the platform but that is pretty niche. That could be a good business - but I'm not sure it's a VC-funded business.
Still, I've been skeptical of Quantopian's business for a while. System writers are likely to opt-out if they have any success, and they need a track record of 5+ years in order to raise any substantial amount of money - particularly true with something so unproven like a crowdsourced algo fund.
They could (you know, theoretically) copy Robinhood's business model and its evolution - allow users to trade algorithmically with their own accounts, offer them up as sacrificial lambs to HFT, and then offer credit, and so on.
> the Paul Graham story where he tells Jerry Yang his idea for selling ads and then realized when Jerry told him no that yahoo was already selling ads for more than they were worth.
People who make money with algos would never share them with quantopian but people who couldn't, would. It's the nature of the beast in wallstreet, I've worked in wallstreet for over 29 years. The resources for discovering algos that are profitable are very expensive.
They make a lot of those resources available for free. I worked in algo/hft for about 11 years, then left and started building my own tools for building factor based algos using my interactive brokers' apis and my own toolkit. I was doing it on the side for about 3 months before I came across quantopian- and immediately felt like an idiot because they had done so much of the work for me- and it was available for free. It would have taken me probably 2 years to get anywhere close to their offering, and that's just for the pure trading/event processing side of it, let alone their backtesting, and risk measurement framework.
I have been using it for a factor and value based microcap strategy for the last 4 years and have been beating the market's total return by about 5% on average each year. I trade a relatively small universe, its not really scalable to a large fund.
I stopped applying for "quant" jobs in 2007- everyone wanted a PHD even though I was doing a lot of the same work- I got lucky and landed a job in Options AMM and for awhile was doing both dev work and what I later found out was considered quant work in most other places.
My point being though is they provide a lot of infrastructure that would normally only be available to a very small number of people in banks and the like and those tools are gate-kept to PHDs and those deemed worthy of even getting a look. I don't put my algos in the competition and actually trade them manually so they are likely completely under the radar from quantopian, and aside- they look for very specific characteristics in their algos that mine don't fit. There is opportunity out there though, especially if you are trading in small size (lets say under 5-10M),
2007, that's when most quant shops shit the bed, you didn't miss much goodtimes. I'm curious, how many out of samples did you backtest your algo through? And what time frames were used ?
In general, I backtested for the longest period the platform would allow, which is unfortunately only back to about 2002 (I really wish it went back pre-.com boom, to 1997 or so). I would then often do separate tests for 2007-2013, 2012+, etc, just to see how returns were affected by market timing- you can kind of eyeball this, but over long timeframes, sometimes unacceptable underperformance during a volatile period can be a bit hidden over a long period.
If you have the data, that's great. Is there really value in that though? Markets have changed so much, especially with the rise of index funds and etfs and such. I couldn't imagine much value going back to pre WWII, or even before 1970. I would be satisfied if Q went back to the early 80s
Could you elaborate on quant jobs requiring PhDs? Do they look for a very specific PhD (i.e. statistics), or is it just a blanket requirement to get past the hiring screens?
This was all about 10 years ago, the market has moved since then, and now it seems you can slip under the PHD radar and do similar work if you classify yourself as a "data scientist." Some of the mythos around quants and technology has been uncovered, 10 years ago quantitative and electronic trading was still a newish thing and at a backseat to traditional traders and PMs. Many firms these days are technology first, though there are often still walls between those who write "models" and those who write "infrastructure."
Anyway, its still largely true that for "quant" roles you need a PHD. It doesn't need to be in anything particular, but Physics/Math/Statistics are strongly preferred. This is just a hiring screen thing. Its not impossible, but quant types tend to have a big head and be elitist, and I personally found them to just be real jerks in the hiring process, and there were plenty of opportunities opening up in the then lucrative algorithmic/HFT space so I went down that road. By jerks, there were just several opportunities where you could just tell they didn't like my lack of credentials and that I went to a state school (on a scholarship, but still they can't have non ivy leaguers stinking the place up), and it was also fairly easy for them to just throw advanced math problems at me and knock me out of the running- regardless if this was something that was ever used in their actual work.
I don't really regret it, but it would have been nice to be more heavily involved in pure finance stuff- I find the markets fascinating, I was very happy when I wrote some of the first TWAP and VWAP strategies out there, and then later (surprise!) started getting edged out of that space by "quants" with PHDs.
In the early 90s, I was lucky. I pitched on the phone, they called me in, and the following day I had a corner office overlooking the beautiful statue of liberty. We laughed, dined, and drank often after work, it was fun and not a snob in sight.
In addition to this, the amount of effort/computation required to find winning strategies is going up all the time, because as market inefficiencies are exploited by people they start to disappear.
You're parent is probably trying to say that talented people have been found and they are working in the wall Street. They won't contribute to quantopian.
So, you think wall street would be first to identify some brilliant coder who liked video games too much to have the grades to get into MIT? I doubt it. Quantopian sounds like the right platform to access that type of talent.
Hedge funds operate across a whole bunch of arbitrage options -- not all of which are available to Quantopian.
At most hedge funds, "alpha" boils down to information asymmetry (aka "how well-connected is my fund manager?") Pure quant platforms almost never outperform because they're so easy to replicate. Quantopian doesn't have enough "levers" to be able to build a comprehensive arbitrage plan. They might be able to provide low-cost hedging on the greeks, but that's just 1980s finance with computers.
Furthermore, it's not the brilliant coder who just joined who makes you all the money. It's the brilliant coder with 15 years experience under his belt who makes way too much to bother with Quantopian who is writing the winners. It's not unheard of for top quant programmers to pull down 8-figures annually.
Those guys are just not gonna mess with Quantopian -- they're going to eat it (and any platform like it) for lunch. In quant finance, if you're not the smartest guy in the space you're playing in, you're just another sucker.
> if you're not the smartest guy in the space you're playing in, you're just another sucker.
I know you're trying to cargo cult some machismo from GGGR, but the stats don't support your claim. There're literally hundreds of successful quant finance firms. Which one is 'the best'? I'll be sure to let Ken Griffin or David Shaw or whoever isn't 'the best' know that they're just 'suckers'.
One big hole in his claim is that a real problem for successful, and really all hedge funds to some extent- is scale. Yeah you might find a microcap out there that looks great but if the ADV on it is 100,000 shares with a <$200M market cap, its going to be really hard to invest a significant amount of money into it if you have even $100M in assets under management (which is considered to be a small fund).
As an individual with orders of magnitude less in funds, there are a lot more opportunities out there picking up the "pennies" that the bigger guys are just too big to get into. I have a strategy that mostly picks up small and microcaps, and have had market beating returns since I have run them the last 4 years. I can't find a reference to it now, but Warren Buffet in an interview talked about some of the ways he could easily invest up to a million dollars and have a margin of safety that should easily allow him to beat the market. The closest thing I could find describing it is this: https://valuebin.wordpress.com/2011/01/27/warren-buffett-on-...
They just pick their spaces well; there are plenty of ways to find a niche where you are the smartest guy in your space. But there are a lot of traders / fund managers who lose their asses; most people don't last very long in a professional environment (the ones who do end up making a ton of money)
For someone who makes very outlandish statements, you never seem to support them in any way. Throwing mild profanity and colloquialisms into your statements (as if being 'cool and casual' will make you sound like an expert?) doesn't suffice.
Yeah I was going to say i thought quants pretty much topped out in the mid 8 figures. Although to be fair, I can't even fathom making ten figures annually. Having a compensation package that compares to the GDP of a small nation is beyond my comprehension.
Well, the guys making that kind of money (David Tepper comes to mind) are managing their own money with the fund / family of funds as well. I'm sure it's almost all capital gains.
I don't get the point of these. Index funds win most of the time, and when they don't index funds still win once you count the amount of time and effort needed to marginally beat them.
I can't speak for Quantopian but traditionally the goal of a "hedge fund" is to preserve your vast wealth through a diverse range of market conditions. This means it should substantially overperform the index funds when they're all tanking, but could very well underperform them when they're doing well.
I think probably this only makes sense if you want to be able to liquidate your assets at any time without having to worry about taking a tremendous loss if the market is down.
Wealth preservation isn't really the point of most hedge funds. Bond index funds that invest in only the highest rated sovereign and corporate debt are cheaper ways to preserve wealth which outperform stock index funds when they're tanking and underperform them when they're doing well. Hedge funds serve other purposes.
But if you're heavily invested in bonds then you can't "liquidate your assets at any time" like the commenter above you said. It sounds like you're talking about different investing goals, not really refuting their claim.
What are you talking about? Bond index fund holdings are extremely liquid. And even if you directly hold individual bonds in your own account, investment grade bonds from large issuers are also very liquid. The vast majority of wealthy hedge fund investors still don't have investments large enough that liquidity becomes a serious concern for bond trading.
Well given that quantopian hasn't existed long enough for their machine traders to be trained during adverse market conditions, I wouldn't hold my breath.
Back testing based on OHLC on a crash day isn't very useful for many systems.
The bid/ask of instruments become illogical. Bad trade data in the live feed won't be in your historical data.
Intraday during a liquidity drop is mostly based on your relationship with your broker. How they handle margin calls will decide if your trades survive.
For example, traders have had margin calls on option spreads with a known fixed risk at the time of opening. But the individual legs of the trades were making very incorrect markets, so the broker algorithms issued margin calls and liquidated at the worst time possible.
Obviously, but 1) the data are not the same then so it's possible the algos just learn that featureset and not the actual patterns, and 2) I'm more talking about the meta-pruning and algorithmic balancing quantopian uses to determine which bot wins, which fundamentally can't be trained on the past.
That only works if you have the nerves to sit out a crash and the (hopefully) subsequent recovery. I'm really curious how the majority of ETF investors would behave then, given that there hasn't really been a crash since ETFs achieved widespread popularity. Indices often have immense drawdown, and funds can attempt to limit this at the cost of some performance. It's a valid trade-off for many.
Yes, but what changed is the popularity of investments that track indices (whether they be index funds or ETFs). Loads of ETF investors haven't witnessed a crash, and it's going to be interesting to see how they react.
Hedge funds are very much aware of this -- it's called "beta". If you're not doing better (or offering less risk, or lower market correlation, or something) your hedge fund is a bad hedge fund.
Krugman misidentifies the problem with the co-op. Basically the whole thing is a failure in the exercise of price controls.
An arbitrary authority decides on a unit of a resource that shouldn't have fixed value should have fixed value, and his solution is to introduce inflation... I suppose when you have a hammer everything looks like a nail.
Wealth could be defined as consumption. (Not necessarily in the sense of using up resources. You could include externalities).
Winning is defined as increasing consumption. Everyone can have access to more of something. For instance, there are more books available to everyone. (Trying to think of a neutral, apolitical item).
Everyone in the stock market winning does not mean everyone is winning.
That is, not everyone is in the stock market. MOST are not in the stock market.
Even more are not in the stock market in any appreciable, day-to-day way. If my 401k went up 100x, I'd still have to go to work and budget because my 401k is not liquid.
Depending on the report you read, between one third and one half of americans couldn't come up with $2,000 in an emergency if they needed it. The cost of most goods could not rise or people would starve.
The stock market going up makes no difference to a majority of america.
And what is their average exposure? If you have 10k in a 401k and it goes up by 100x, that's great, but not enough to immediately retire.
If you have 50k in a 401k and your funds double (a more reasonable increase, but still absurdly well)... so what? The point is, the stock market is a terrible metric of how their wealth is doing for a great many people. Enough people that drastic upward movements will only affect the prices of higher-end items because it will not immediately inject cash into people's lives who are living paycheck to paycheck (or nearly are) and need to buy food.
It's early to say but the top strategies on Quantopian were showing off sharpe ratios higher than 2.5, which should bring great profitability with very small downward moves. The fact that they have such a poor performance so far (while still having little AUM) is definitely a proof that something is wrong with the way they test their strategies...
What the market is doing isn't really relevant to a market neutral strategy, and that is almost surely what they are running. The goal is to make money consistently, whether market is up or down.
not really. Value based strategies tend to get hurt pretty bad during the tail end of bull markets when euphoria starts to set in, and increases tend to be due to P/E expansion and rosy predictions for the future rather than current performance, and tend to do very well after downturns and things get oversold.
They are probably market neutral. For as many dollars they are long, they are short an equal amount. Therefore it doesn't matter what the market is doing. It matters that their longs outperform their shorts.
A bull market with pretty low volatility, though. Especially since the early summer. At this point, a 2% daily move in SPX would be a 4 sigma event. Making money from actively trading the market is much harder when ranges are small, and it's easy to die from a 1000 cuts when you don't adapt.
They're not down 10% and market gains are not risk free.
Performance can really only be compared with risk free returns (ie. TIPS). Anything else and you have to look at a bunch of other factors like volatility, VAR etc.
Every investment I've ever bought has gone down within 6 months of the time I bought it. Unless you perfectly time a bottom that's what's gonna happen. The question is where it is in 6 years, not 6 months.
Plus, for a hedge fund there are a lot of initial costs and entering a position is where expenses happen generally.
Problem here is they are not purchasing and holding for 6 years or even 6 months. These are typically short term timescale strategies. They are turning capital over quickly so the gains or, in this case, losses are locked in quickly.
It's still way to early to be worried about the fund but to be fair, its been a good time for most quantitative funds. And the space that I imagine Quantopian is competing in, factor based models for US Equities, is a very crowded space right now.
I'm sure having a flagship fund was an important project for the company I'm reminded of the Paul Graham story where he tells Jerry Yang his idea for selling ads and then realized when Jerry told him no that yahoo was already selling ads for more than they were worth.
I'm wondering if there is a parallel here with quantopian where they were better off letting people think that they could beat the market with a factor based model, rather than actually starting a fund and showing their users how tough it really is.
> Still, Quantopian manages about $50 million in a hedge fund, a tiny amount in that world and well below the $250 million executives anticipated at the end of this year
This might work in their favour.
The difference in the management fee doesn't translate into alot of money and its much easier to manage a sub $100 million fund than it is to run a $250 million dollar fund. Especially for one that is just starting out and doesn't appear to have found their secret sauce just yet.