The Man Who Solved the Market

Your favorite books and links
Post Reply
User avatar
jennypenny
Posts: 6456
Joined: Sun Jul 03, 2011 2:20 pm
Location: Stepford USA

The Man Who Solved the Market

Post by jennypenny »


Mister Imperceptible
Posts: 1188
Joined: Fri Nov 10, 2017 4:18 pm

Re: The Man Who Solved the Market

Post by Mister Imperceptible »

https://m.youtube.com/watch?v=VjuL1TH_cWY

Is there insight into quantitative investing or is it primarily a yarn? I have no doubt it is interesting regardless but I’m juggling multiple reads.

Jason
Posts: 2688
Joined: Mon Jan 30, 2017 8:37 am

Re: The Man Who Solved the Market

Post by Jason »

New York Times review. Seems like a must.

https://www.nytimes.com/2019/11/13/book ... e=Homepage

Salathor
Posts: 84
Joined: Fri Dec 18, 2015 11:49 am

Re: The Man Who Solved the Market

Post by Salathor »

I really feel like the NYT review needed to pull Trump into it a few more times than they did, since this is a book about politics and the election.

User avatar
jennypenny
Posts: 6456
Joined: Sun Jul 03, 2011 2:20 pm
Location: Stepford USA

Re: The Man Who Solved the Market

Post by jennypenny »

@MI — It’s a yarn.

@Salathor — The book isn’t about politics. It doesn’t even come up until the last couple of chapters.

User avatar
jennypenny
Posts: 6456
Joined: Sun Jul 03, 2011 2:20 pm
Location: Stepford USA

Re: The Man Who Solved the Market

Post by jennypenny »

I looked at the book again. Politics is the main focus of the next to last chapter. It revolves around Mercer and his role in Trump’s election and, to the author's credit, avoids being a straight-up anti-Trump screed. To my mind, the bigger issue that comes out of that chapter is whether individual pursuits and positions should have any bearing on an individual’s employment. You might think yes in the case of Renaissance (#becauseTrump) but the pendulum always swings the other way eventually and it pains me to think of conservative firms squeezing out liberal coworkers or executives because of politics. Besides, it can be too disruptive … Mercer had to step down from his executive role at Renaissance but Magerman was also forced out.

The most interesting ideas I got from the book (in addition to the history and explanation of quant trading) were (1) being an early adopter can be very rewarding if you pick your field correctly, which is true in almost any pursuit, and (2) understanding machine learning will be a huge field in the future. People like Richard Thaler will be studying behavioral science as it pertains machines, not humans. It will be the next black box scientists try to decipher after the human brain.

Campitor
Posts: 942
Joined: Thu Aug 20, 2015 11:49 am

Re: The Man Who Solved the Market

Post by Campitor »

I’m currently reading the book. It’s a very interesting book so far. Odd to read about PHDs starting fistfights with colleagues while designing AI and working on award winning mathematical theories and algorithms.

Salathor
Posts: 84
Joined: Fri Dec 18, 2015 11:49 am

Re: The Man Who Solved the Market

Post by Salathor »

jennypenny wrote:
Mon Nov 18, 2019 4:35 pm
@MI — It’s a yarn.

@Salathor — The book isn’t about politics. It doesn’t even come up until the last couple of chapters.
I meant sarcastically that the review overemphasized politics--I'm not sure every review needs to have a disclaimer these days that one of its subjects is a conservative.

"For the politically inclined, one of the most interesting was the firm’s former co-chief executive, Robert Mercer, the conservative billionaire who funded Breitbart News and Cambridge Analytica."

"You could also argue, as another former executive guiltily put it, that working for Renaissance 'helped provide Mercer with the resources to put Trump in office.'"

Are these worth mentioning in a book review?

User avatar
jennypenny
Posts: 6456
Joined: Sun Jul 03, 2011 2:20 pm
Location: Stepford USA

Re: The Man Who Solved the Market

Post by jennypenny »

Oops, didn't realize you were being sarcastic.

Then yes, I totally agree with you that the review overemphasized politics, especially since I thought the author did a good job of walking a straight line through all the main characters, politically and otherwise. (Mercer isn't the only one with some pronounced quirks at Renaissance. As Campitor mentioned, there is some strange/unexpected behavior sprinkled throughout the book.)

Salathor
Posts: 84
Joined: Fri Dec 18, 2015 11:49 am

Re: The Man Who Solved the Market

Post by Salathor »

The book is definitely going on my 'check out from the library' pile, along with the new Houllebeque (sp?) novel. Not a huge fan of his writing, but I found Submission to be very thought provoking. Anyone who read that and said he was an Islamophobe missed the point.

Scott 2
Posts: 1465
Joined: Sun Feb 12, 2012 10:34 pm

Re: The Man Who Solved the Market

Post by Scott 2 »

Just finished this one. The politics chapter came out of nowhere. I did not realize how negatively Mercer's political involvement impacted his family. I was only vaguely aware of complaints around a select few influencing the election. It was a stark reminder of the power wielded by the wealthiest individuals. I still think of wealth as a high score, but at those levels, it really is the ability to shape society to your ideals.

Reading the strategies employed as the firm evolved, reinforced my conviction that most consumer level trading success is lucky speculation or cherry picked. And that even if someone is in the top 1% of intellect, they are not going to randomly stumble upon or figure out a superior strategy. Such a person has better financial opportunity joining a fund to play with other people's money, especially when they are learning.

I am inclined to believe that after learning at a quant. fund, it is possible to have strategies that are too small for a firm, but could capture inefficiencies large enough to benefit an individual investor's portfolio. But with that level of understanding, I bet the rewards of playing with other people's money are greater.

I've largely ignored the brain drain of quantitative investing, preferring to view it from the perspective of smart individuals rightly cashing in. The societal opportunity cost is a bummer. Having that spelled out didn't feel great. Nor the question of where the money the quants "earn" comes from. There was a strong implication that it's almost entirely a drain on society. That consideration makes me even more hesitant to try non-indexing strategies. It seems naive to think I can compete, and more alarmingly, makes me doubt the rationality of playing on the same field as them at all.

Maybe the smart individual investor needs to think more carefully abut smaller, private and possibly local investments. It's something at the back of my mind for some years now. I've tried to mitigate the risk of investing in public markets by getting my spending down, paying off my house, building my intellectual capital, holding firm to a strategy, minimizing transaction frequencies, avoiding fees, etc. But maybe there's merit to further diversifying my assets relative to public markets.

jacob
Site Admin
Posts: 12228
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 73
Contact:

Re: The Man Who Solved the Market

Post by jacob »

Most of the public value-add from quant strategies most of which are high frequency operations comes in the form of lowering spreads and the increasingly small (now mostly zero) commissions. Before electronic traders took over, with quant strats being the latest incarnation, stocks had large spreads (at least a quarter but sometimes more) and commissions where $20+ per trade. For example, GE might quote at 52.25-53.00, so if you wanted to buy 100sh, you'd pay $5320 to get $5225 with the broker swiping the $95 difference. Today, the quote might be 52.67-52.68 and your trade might execute at 52.6744, so you'd pay $5267.44 with the quant making $0.56 for the trade. However, they do this many many times per day. You can pretty much presume that every single time---well 95% of the times---you trade a share, there will be a quant on the other side making about half a cent per share of your business.

These old school brokers all lost that business and are (coincidentally?) some of the most vocal opponents to the electronic systems.

In terms of actually making the market more efficient in the sense of picking better investments, I don't think quant strategies have much influence either way, so in that sense, they're not improving the markets. However, neither is passive index investing which in many ways is the simplest quant strategy possible. Air pockets and crashes are often blamed (falsely) on quants, but what actually happens during these special events (where stat-based models don't do well) is that quants manually pull out leaving the entire field for far fewer humans still participating in the market. The problems are thus caused by their absence. Consequently there are also voices wanting some regulation to make them stay in, e.g. make it so that it takes at least n seconds to cancel an order.

All the different participants are lobbying for an edge or some regulatory capture. Overall, trading is turning into a vast jungle of regulations and attempts to find mathematical inefficiencies in them. Last time I read it (in 2015), Reg NMS which governs the rules of trading, was 500+ pages long. Most traders are familiar with a handful of order types (market, limit, stop limit, ...), but some electronic platforms support nearly 150 different order types. This was part of the reason I left the business.

Scott 2
Posts: 1465
Joined: Sun Feb 12, 2012 10:34 pm

Re: The Man Who Solved the Market

Post by Scott 2 »

It's hard for me to reconcile the volume of money earned by the quants with value provided by lowered spreads, lowered commissions and increased liquidity. Especially in the case of the book's firm, where their star fund moved to short term trades, all under a day or two.

But, it's also more evident to me just how complex the system is, and how ignorant I am of it. Apparently there is a lot more wealth tied up in futures than the shares themselves? And it's normal for a fund to borrow to invest in these options. I recall reading something like a 9:1 ratio. That's not just the quants. Part of the book, for me, was an education on the overall market.

I already didn't believe one could reliably count on the 10-K as anything other than a relative measure. I still thought maybe value investing was possible, but we'd had few opportunities for it during my investing span. Now I wonder - how can anyone confidently value a public company, after adding the complexity introduced by the futures trading?

Fair point on indexing being a simple quant. strategy. It seems like my best hope of playing a winnable game (SWR 3-4%) in the public markets. I wouldn't say I object to the quants specifically. Rather, glimpsing the jungle of complexity opened my eyes. I can see why it would drive one out of the business. My biggest fear is that someone figures out how to drain the indexers, and I don't realize it until the losses rack up. Heck, maybe they already are, but limit the bite to ensure the suckers don't drop out.


The other thing that became more clear to me (both from this book and Rushkoff's Throwing Rocks at the Google Bus, is I am several Wheaton levels away from true understanding of a dollar. I'm beyond "a piece of paper to trade for a candy bar" but there is way more depth. Valuing net worth in US dollars is a precise measure. But despite being my default choice, it is not accurate. Knowing there is so much gamesmanship in the underlying economy, it becomes more evident I need to think about wealth differently.


Roughly - each asset I have is a store of power. The value offered by that power is specific to circumstance, both global and individual. Maximizing wealth is about optimizing that value relative to my web goals. I've been dancing around this, trying to trade money for time. But it is ALL fungible. There is no true denominator asset.

I have not wrapped my head around practical application. I can jump ahead to a "right" answer against an "ideal" web goals - ERE's diversification of capital and income streams. Rethink my bias against tools, physical skills and manual labor. Be more willing to take on stores of wealth I have to upkeep - from real estate to rotating larger inventory of non-perishables. Reconsider my default ownership of strategy of old and broken things.

But, maybe my ideal web includes a maximization of laziness, and so indexing isn't too far off. More to think about than I expected.

Post Reply