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>The market cannot be beat. I really would like to believe this, but please explain to me how then how firms like Renaissance can exist ... Not sure whether it

>The market cannot be beat. I really would like to believe this, but please explain to me how then how firms like Renaissance can exist ... Not sure whether it's relevant but I'll add that I'm an economics PhD student.

chei0iaV 10y ago
Two decades ago you might have asked how firms like Long-Term Capital Management can exist https://upload.wikimedia.org/wikipedia/commons/e/ec/LTCM.png https://upload.wikimedia.org/wikipedia/commons/e/ec/LTCM.png
- gragas 10y ago
  That's a ridiculous argument. From that graph, LTCM lasted 4 years. Renaissance has lasted decades.
qwrusz 10y ago
The market cannot be beat by 100% of amateurs piddling away on their brokerage account during a few spare hours a week. The market cannot be beat by 99.9% of professional investors spending all their time day and night trying and with a team of people helping them. I'm calling your bluff on you being an econ PhD student or maybe you have been one for a month or two at most...? If you are an econ grad student you know what RenTec is doing more or less. At least in theory if not specifics, people talk and there's plenty of econ papers explaining what's underneath major quant strategies. People need to chill bringing up RenTec when finance comes up (Buffett too). Just like they need to chill bringing up Facebook when talking about startup valuations. Outliers are outliers.
- jamez1 10y ago
  Academia doesn't pay that much attention to the real world. Most of the papers out there are rubbish and would be considered junior level work, except with way too much detail. There are pretty much no econ papers that would describe what happens inside the high end systematic firms. (Source: I work in the industry) Bringing up the outliers is a perfect counterexample when wild sweeping statements are made. These are not even real outliers, they are valid samples. >The market cannot be beat by 99.9% of professional investors spending all their time day and night trying and with a team of people helping them. Professional investors pretty consistently beat the market. But not the ones that you see. The louder someone markets their fund, the more likely it is to be a scam. Your sample is of guys who heavily promote their fund and make money from management fees not performance. The best managers aren't even made visible to you. Why would you attract attention to what you're doing if you have a good thing going?
  - Inconel 10y ago
    >high end systematic firms I'm not familiar with this term, would you mind giving me a general description of what kind of investing these firms take part in?
    - jamez1 10y ago
      "Algotrading" generally refers to execution algorithms only, despite popular culture's interpretation. When the funds portfolio is decided based on a system your fund is systematic. It's an important distinction.
  - rphlx 10y ago
    I agree & the "pro-index" crowd would improve the accuracy, if not the effectiveness, of its message by saying "non-passive strategies can work superbly, but not for outsiders with <$1M in capital" instead of saying "no one beats the market in the long run" / "you can't predict which parties will beat the market in the long run".
  - deleted 10y ago
    [deleted]
  - qwrusz 10y ago
    Illuminati confirmed then right. My bad. Professional investors are not pretty consistently beating the market...secular! Anyone can have a good year or two. I'm not talking about dudes talking their book on CNBC. Yes there are shops that beat the market, but if you have beaten the market 5 years in a row, you can't keep it a secret even if you want to.
    - jamez1 10y ago
      How exactly do you think the performance is made public, if the fund doesn't want it to be? This isn't about illuminati, this is just logic. You can't hide what you're doing from the institutions you have to deal with, but they won't exactly disclose it to general public. Why would you promote your fund, if you have all the FUM you need? If you are doing well, why would you tell people about it? It is funny that your position is because you haven't seen it, it doesn't exist.
ceejayoz 10y ago
Renaissance is part of the market, and it's the sort of thing that we individual investors can't beat. "The market can't be beat" doesn't mean no one can see better returns - it means a random yahoo like me simply can't compete with the information, processing power, and access funds like Renaissance have. Thus, an average investor is a lot better off with an index fund instead of trying to pick individual stocks. (Funds like Renaissance's Medallion simply aren't available to people without tens of millions of dollars to throw around, too.)
- kobeya 10y ago
  So buy into the Renaissance mutual fund. There, you beat the market.
  - auntienomen 10y ago
    Renaissance doesn't run mutual funds. They aren't taking outside money in the market-beating fund.
  - alex_anglin 10y ago
    Past performance is not a guarantee of future returns?
    - kobeya 10y ago
      People have been saying that about rentech for the last 20 years. People have also been saying that about berkshire hathaway for the past half century. At some point, past performance IS indicative of future returns.
  - ceejayoz 10y ago
    Funds like Renaissance's have minimum investments in the millions, are often invite-only, etc. We average investors simply can't play in those leagues.
  - Inconel 10y ago
    I'm not sure about any Rentec mutual fund, I don't think such a thing exists, but aren't the funds they have open to institutional investors not doing particularly well? When most people say Rentec they think Medallion, which while being spectacularly profitable over 20+ years, is now a closed fund only open to current employees last I heard.
geofft 10y ago
Renaissance has hundreds of smart people trying to beat the market. Same with the HFT shops. You can start one of those firms; in all likelihood, not all the potential profit has been extracted yet. You can hire a bunch of smart mathematicians and/or smart technologists, and spend time working on the problem. And then you'll be in good shape to beat the market. If you're an econ Ph.D. student hanging out on Hacker News, you're already well on your way to doing this with your life, if that's what you want to focus your life on! But "you", the person with an unrelated day job fiddling with some investing app on your phone in your spare time, starting with a relatively small amount of capital compared to Renaissance's first year, and relatively small risk tolerance compared to Renaissance's first year, and definitely not enough money to hire a bunch of scientists full-time - "you" who's asking on a thread about passive income instead of lifelong career options - you are statistically unlikely to beat the market. That's what people mean by "You can't beat the market."
jamez1 10y ago
He's wrong because he's assuming the average result of the zero-sum game is the only result you can have. It's a simple fallacy most people with a statistics background understand, but the average journalist doesn't. Saying you can't beat the market, is like saying you can't win at boxing, because on average nobody wins (there's always a winner for every loser).. but I would put my money on Mike Tyson in his prime. Your expected value for investing across the market, will roughly converge to the market because of diversification. ~20 funds will start to approximate the underlying universe of stocks, because the range of views of the fund will be across all of them. All of the alpha will be evened out into beta. So after fees - you would be better just investing in an index than a basket of funds. But there is dependence, a good fund is consistently a good fund. So if you get a chance, it's much better to invest in a good fund. But the best funds aren't accessible to the public, so the public doesn't get to understand the market for what it really is. And there's a lot of shit ones that market heavily to the public. There is also a populist idea to the notion that indexes beat hedge funds etc, it makes the average person feel good to think the top investors are no better than they are. So why would journalists peddle the true narrative?
huac 10y ago
Rentech, in particular, data mines weak signals out of gigabytes of historical data, and has a team of PhD mathematicians working to find these signals. Each strategy has some small positive expected value, so in aggregate they can be profitable. Two reasons you can't replicate this - 'you' aren't a team of super top notch mathematicians with decades of data, and even if you had an exact copy of their trading strategies, you don't have the capital to make the transaction costs, etc, worth it.
- deleted 10y ago
  [deleted]

chei0iaV 10y ago

Two decades ago you might have asked how firms like Long-Term Capital Management can exist https://upload.wikimedia.org/wikipedia/commons/e/ec/LTCM.png https://upload.wikimedia.org/wikipedia/commons/e/ec/LTCM.png

gragas 10y ago
That's a ridiculous argument. From that graph, LTCM lasted 4 years. Renaissance has lasted decades.

qwrusz 10y ago

The market cannot be beat by 100% of amateurs piddling away on their brokerage account during a few spare hours a week. The market cannot be beat by 99.9% of professional investors spending all their time day and night trying and with a team of people helping them. I'm calling your bluff on you being an econ PhD student or maybe you have been one for a month or two at most...? If you are an econ grad student you know what RenTec is doing more or less. At least in theory if not specifics, people talk and there's plenty of econ papers explaining what's underneath major quant strategies. People need to chill bringing up RenTec when finance comes up (Buffett too). Just like they need to chill bringing up Facebook when talking about startup valuations. Outliers are outliers.

jamez1 10y ago
Academia doesn't pay that much attention to the real world. Most of the papers out there are rubbish and would be considered junior level work, except with way too much detail. There are pretty much no econ papers that would describe what happens inside the high end systematic firms. (Source: I work in the industry) Bringing up the outliers is a perfect counterexample when wild sweeping statements are made. These are not even real outliers, they are valid samples. >The market cannot be beat by 99.9% of professional investors spending all their time day and night trying and with a team of people helping them. Professional investors pretty consistently beat the market. But not the ones that you see. The louder someone markets their fund, the more likely it is to be a scam. Your sample is of guys who heavily promote their fund and make money from management fees not performance. The best managers aren't even made visible to you. Why would you attract attention to what you're doing if you have a good thing going?
- Inconel 10y ago
  >high end systematic firms I'm not familiar with this term, would you mind giving me a general description of what kind of investing these firms take part in?
  - jamez1 10y ago
    "Algotrading" generally refers to execution algorithms only, despite popular culture's interpretation. When the funds portfolio is decided based on a system your fund is systematic. It's an important distinction.
- rphlx 10y ago
  I agree & the "pro-index" crowd would improve the accuracy, if not the effectiveness, of its message by saying "non-passive strategies can work superbly, but not for outsiders with <$1M in capital" instead of saying "no one beats the market in the long run" / "you can't predict which parties will beat the market in the long run".
- deleted 10y ago
  [deleted]
- qwrusz 10y ago
  Illuminati confirmed then right. My bad. Professional investors are not pretty consistently beating the market...secular! Anyone can have a good year or two. I'm not talking about dudes talking their book on CNBC. Yes there are shops that beat the market, but if you have beaten the market 5 years in a row, you can't keep it a secret even if you want to.
  - jamez1 10y ago
    How exactly do you think the performance is made public, if the fund doesn't want it to be? This isn't about illuminati, this is just logic. You can't hide what you're doing from the institutions you have to deal with, but they won't exactly disclose it to general public. Why would you promote your fund, if you have all the FUM you need? If you are doing well, why would you tell people about it? It is funny that your position is because you haven't seen it, it doesn't exist.

ceejayoz 10y ago

Renaissance is part of the market, and it's the sort of thing that we individual investors can't beat. "The market can't be beat" doesn't mean no one can see better returns - it means a random yahoo like me simply can't compete with the information, processing power, and access funds like Renaissance have. Thus, an average investor is a lot better off with an index fund instead of trying to pick individual stocks. (Funds like Renaissance's Medallion simply aren't available to people without tens of millions of dollars to throw around, too.)

kobeya 10y ago
So buy into the Renaissance mutual fund. There, you beat the market.
- auntienomen 10y ago
  Renaissance doesn't run mutual funds. They aren't taking outside money in the market-beating fund.
- alex_anglin 10y ago
  Past performance is not a guarantee of future returns?
  - kobeya 10y ago
    People have been saying that about rentech for the last 20 years. People have also been saying that about berkshire hathaway for the past half century. At some point, past performance IS indicative of future returns.
- ceejayoz 10y ago
  Funds like Renaissance's have minimum investments in the millions, are often invite-only, etc. We average investors simply can't play in those leagues.
- Inconel 10y ago
  I'm not sure about any Rentec mutual fund, I don't think such a thing exists, but aren't the funds they have open to institutional investors not doing particularly well? When most people say Rentec they think Medallion, which while being spectacularly profitable over 20+ years, is now a closed fund only open to current employees last I heard.

geofft 10y ago

Renaissance has hundreds of smart people trying to beat the market. Same with the HFT shops. You can start one of those firms; in all likelihood, not all the potential profit has been extracted yet. You can hire a bunch of smart mathematicians and/or smart technologists, and spend time working on the problem. And then you'll be in good shape to beat the market. If you're an econ Ph.D. student hanging out on Hacker News, you're already well on your way to doing this with your life, if that's what you want to focus your life on! But "you", the person with an unrelated day job fiddling with some investing app on your phone in your spare time, starting with a relatively small amount of capital compared to Renaissance's first year, and relatively small risk tolerance compared to Renaissance's first year, and definitely not enough money to hire a bunch of scientists full-time - "you" who's asking on a thread about passive income instead of lifelong career options - you are statistically unlikely to beat the market. That's what people mean by "You can't beat the market."

jamez1 10y ago

He's wrong because he's assuming the average result of the zero-sum game is the only result you can have. It's a simple fallacy most people with a statistics background understand, but the average journalist doesn't. Saying you can't beat the market, is like saying you can't win at boxing, because on average nobody wins (there's always a winner for every loser).. but I would put my money on Mike Tyson in his prime. Your expected value for investing across the market, will roughly converge to the market because of diversification. ~20 funds will start to approximate the underlying universe of stocks, because the range of views of the fund will be across all of them. All of the alpha will be evened out into beta. So after fees - you would be better just investing in an index than a basket of funds. But there is dependence, a good fund is consistently a good fund. So if you get a chance, it's much better to invest in a good fund. But the best funds aren't accessible to the public, so the public doesn't get to understand the market for what it really is. And there's a lot of shit ones that market heavily to the public. There is also a populist idea to the notion that indexes beat hedge funds etc, it makes the average person feel good to think the top investors are no better than they are. So why would journalists peddle the true narrative?

huac 10y ago

Rentech, in particular, data mines weak signals out of gigabytes of historical data, and has a team of PhD mathematicians working to find these signals. Each strategy has some small positive expected value, so in aggregate they can be profitable. Two reasons you can't replicate this - 'you' aren't a team of super top notch mathematicians with decades of data, and even if you had an exact copy of their trading strategies, you don't have the capital to make the transaction costs, etc, worth it.

deleted 10y ago
[deleted]