5 ms·

This sounds like the fictitious company in the Series "Billions". How did these guys make 98.5% in 2000 and 33% in 2001 in the depths of the .com collapse of Wa

This sounds like the fictitious company in the Series "Billions". How did these guys make 98.5% in 2000 and 33% in 2001 in the depths of the .com collapse of Wall Street? Something smells fishy.

hkmurakami 10y ago
They're a high frequency shop that often won't have a net long position in any assert class. In addition, market turmoil is when trading shops make the most money.
- awaythrow856 10y ago
  This is categorically incorrect. They are not a high frequency shop, and they hold positions overnight. Two Sigma, however is a high frequency shop. (I work in the industry.)
- Lazare 10y ago
  Renaissance Technologies is, somewhat famously, not a HFT shop.
  - atemerev 10y ago
    The only remaining option is pair correlations / volatility arbitrage. :)
Jugurtha 10y ago
You might want to take a look at a book entitled "The Quants" by Scott Patterson. He talks extensively about Medallion. Inception, speech recognition people, etc.
- alecco 10y ago
  I dropped that book. Fortune's Formula is much better.
  - sooheon 10y ago
    For those interested in either, can you give more information/opinions to sway one way or the other?
    - Jugurtha 10y ago
      I can't say anything about the other book, but "The Quants" is a good read and dives into the history of these funds. I also liked the style for what is not there. Usually, people addressing these questions try to make it look like magic and easy. I hate the 5 minute montage in movies with cool music that condenses 5 years of hardship. You can pick it up, read some pages and put it down if you don't like it. The author seems to have had access to the people he talks about, and had help from the right people (Mandelbrot, Taleb, Ed Thorp, to cite a few). For me, this increases weight and it makes it cool. An edX course about Discrete Time Signals? That's nice. Finding out that the instructor is Richard Baraniuk knowing that I used a paper of his (an adaptive optimal kernel) [to do time-frequency analysis for multiphase flow pattern recognition]? That's cool!
rajacombinator 10y ago
You're not supposed to ask those questions. ;) However making money in those two years is nothing unusual.
Lazare 10y ago
They use big data techniques to find weak correlation in data and invest moderate amounts of money in them. They never make a large return on any given investment, but they make very persistent returns; over the long run this adds up. The limiting factor behind what they do is that it doesn't scale. > How did these guys make 98.5% in 2000 and 33% in 2001 in the depths of the .com collapse of Wall Street? The name "hedge fund" comes from the concept of a hedge; a strategy that will underperform in good times, but over perform in bad ones. 2001 is the exact time you'd expect a hedge fund to do well, especially one focused on dispassionate data analysis.
- nabla9 10y ago
  This is good answer. It's also how profitable sports betting syndicates work. Lots of small bets with relatively low expected value. 1% expected return per week is 70% return in a year. You can't scale the syndicate above certain limit.
- fma 10y ago
  It was said before, they don't predict every word in a book. But if they see "New York" in a sentence they will bet the third word is "City".
atemerev 10y ago
There are many ways of achieving extremely high Sharpe ratios (e.g. exploiting market microstructure inefficiencies), with following caveats: 1) They are not scalable (for each such strategy, market turnover capacity is very limited, and increasing it requires coordinated efforts of many smart people). This is the reason they are not taking additional investments and strictly invite-only. 2) Operations efficiency becomes the key. Execution capability has to be consistently at top of the market, and margin for error becomes nearly nonexistent. It is very easy to screw things up. Hence the need for top technical and engineering talent.
alecco 10y ago
Actually that is the least suspicious. They knew it was a bubble and bet against it. Like the guys in The Big Short. You make money when the market is far from reality.

This sounds like the fictitious company in the Series "Billions". How did these guys make 98.5% in 2000 and 33% in 2001 in the depths of the .com collapse of Wall Street? Something smells fishy.

hkmurakami 10y ago

They're a high frequency shop that often won't have a net long position in any assert class. In addition, market turmoil is when trading shops make the most money.

awaythrow856 10y ago
This is categorically incorrect. They are not a high frequency shop, and they hold positions overnight. Two Sigma, however is a high frequency shop. (I work in the industry.)
Lazare 10y ago
Renaissance Technologies is, somewhat famously, not a HFT shop.
- atemerev 10y ago
  The only remaining option is pair correlations / volatility arbitrage. :)

Jugurtha 10y ago

You might want to take a look at a book entitled "The Quants" by Scott Patterson. He talks extensively about Medallion. Inception, speech recognition people, etc.

alecco 10y ago
I dropped that book. Fortune's Formula is much better.
- sooheon 10y ago
  For those interested in either, can you give more information/opinions to sway one way or the other?
  - Jugurtha 10y ago
    I can't say anything about the other book, but "The Quants" is a good read and dives into the history of these funds. I also liked the style for what is not there. Usually, people addressing these questions try to make it look like magic and easy. I hate the 5 minute montage in movies with cool music that condenses 5 years of hardship. You can pick it up, read some pages and put it down if you don't like it. The author seems to have had access to the people he talks about, and had help from the right people (Mandelbrot, Taleb, Ed Thorp, to cite a few). For me, this increases weight and it makes it cool. An edX course about Discrete Time Signals? That's nice. Finding out that the instructor is Richard Baraniuk knowing that I used a paper of his (an adaptive optimal kernel) [to do time-frequency analysis for multiphase flow pattern recognition]? That's cool!

rajacombinator 10y ago

You're not supposed to ask those questions. ;) However making money in those two years is nothing unusual.

Lazare 10y ago

They use big data techniques to find weak correlation in data and invest moderate amounts of money in them. They never make a large return on any given investment, but they make very persistent returns; over the long run this adds up. The limiting factor behind what they do is that it doesn't scale. > How did these guys make 98.5% in 2000 and 33% in 2001 in the depths of the .com collapse of Wall Street? The name "hedge fund" comes from the concept of a hedge; a strategy that will underperform in good times, but over perform in bad ones. 2001 is the exact time you'd expect a hedge fund to do well, especially one focused on dispassionate data analysis.

nabla9 10y ago
This is good answer. It's also how profitable sports betting syndicates work. Lots of small bets with relatively low expected value. 1% expected return per week is 70% return in a year. You can't scale the syndicate above certain limit.
fma 10y ago
It was said before, they don't predict every word in a book. But if they see "New York" in a sentence they will bet the third word is "City".

atemerev 10y ago

There are many ways of achieving extremely high Sharpe ratios (e.g. exploiting market microstructure inefficiencies), with following caveats: 1) They are not scalable (for each such strategy, market turnover capacity is very limited, and increasing it requires coordinated efforts of many smart people). This is the reason they are not taking additional investments and strictly invite-only. 2) Operations efficiency becomes the key. Execution capability has to be consistently at top of the market, and margin for error becomes nearly nonexistent. It is very easy to screw things up. Hence the need for top technical and engineering talent.

alecco 10y ago

Actually that is the least suspicious. They knew it was a bubble and bet against it. Like the guys in The Big Short. You make money when the market is far from reality.