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It's easy to be dismissive of this, especially by working from the popular Warren-Buffet-index-funds-beat-hedge-funds story that makes the rounds. It's true tha

by dsacco 10y ago

It's easy to be dismissive of this, especially by working from the popular Warren-Buffet-index-funds-beat-hedge-funds story that makes the rounds. It's true that most hedge funds and active traders lose money (or at least, underperform the market). But as I am fond of pointing out, there are a non-negligible number of funds and traders who consistently and demonstrably earn significantly stronger returns than the market benchmark, even net of fees. I am skeptical of Numerai for different reasons. If someone can consistently churn out profitable and novel equity pricing insights, it would be more rational for them to work for a more well established hedge fund in quantitative research. Perhaps more importantly, I'm skeptical of how they judge accuracy in their participant-volunteered insights.

numbas 10y ago
Check their board of directors -- all very smart and established people. A former tournament winner did well on both the public and private leaderboard. It is very difficult to do this by luck. He was also a student from Bangladesh who got the opportunity to play with hedge fund data with just the cost of an internet connection and zero risk for messing it up. Should he start working for a hedge fund now, without any finance experience? Could be a good bet. Numerai would still beat him, because they can aggregate all the top models into an ensemble. It is hard to beat 50 individuals, but near impossible to beat a team of 50 competitors. Compare the variance of a single decision tree with a Random Forest.
pjlegato 10y ago
They are betting that there exist people who are capable of performing that work who cannot work at a hedge fund, for whatever reason. Perhaps they live in the wrong location -- it's hard/impossible to get a quant job if you don't live in a major market center. Not everyone is 23 years old and unattached and prepared to move around the world for a job. Perhaps they can do the predictions but they didn't go to a high end university and have no track record -- just try even getting an interview at a hedge fund without one of those.
- dharma1 10y ago
  Or people who do work at hedge funds, but want to moonlight on the side and get paid via bitcoin anonymously

by dsacco 10y ago

numbas 10y ago

Check their board of directors -- all very smart and established people. A former tournament winner did well on both the public and private leaderboard. It is very difficult to do this by luck. He was also a student from Bangladesh who got the opportunity to play with hedge fund data with just the cost of an internet connection and zero risk for messing it up. Should he start working for a hedge fund now, without any finance experience? Could be a good bet. Numerai would still beat him, because they can aggregate all the top models into an ensemble. It is hard to beat 50 individuals, but near impossible to beat a team of 50 competitors. Compare the variance of a single decision tree with a Random Forest.

pjlegato 10y ago

They are betting that there exist people who are capable of performing that work who cannot work at a hedge fund, for whatever reason. Perhaps they live in the wrong location -- it's hard/impossible to get a quant job if you don't live in a major market center. Not everyone is 23 years old and unattached and prepared to move around the world for a job. Perhaps they can do the predictions but they didn't go to a high end university and have no track record -- just try even getting an interview at a hedge fund without one of those.

dharma1 10y ago
Or people who do work at hedge funds, but want to moonlight on the side and get paid via bitcoin anonymously