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From what I have seen, only certain quant funds like Renaissance Technologies and TGS Management have actually truly managed to beat the market in a consistent

From what I have seen, only certain quant funds like Renaissance Technologies and TGS Management have actually truly managed to beat the market in a consistent non-random manner. And they do exactly what you'd expect someone who has a money making machine to do- shut up and at some point kick out your external investors.

Nokinside 7y ago
Quant trading strategy like Medallion Fund uses don't scale. That's why Warren Buffet has more personal wealth than Medallion Fund has AUM. Outside finance, but similar business is sports betting syndicates. They can make 30-70% yearly return with low volatility. If you bet in 100 events per week and the expected return from each bet is just 0.5% (after expenses) you make consistent 30% return with very low volatility. If you make 1% per week you get almost 70%. That's great return for the investment but the size of investment is typically limited to tens of millions. Brokers don't like it and close accounts when they notice them. There is increasing amount of work involved when the amount of money increases.
- Maledictus 7y ago
  Do you have more information about this? I thought "the bank always wins" (or the broker in this case).
  - melling 7y ago
    Jim Simons https://news.ycombinator.com/item?id=21423845 https://news.ycombinator.com/item?id=21423845 Maybe Ed Thorp too: https://en.m.wikipedia.org/wiki/Edward_O._Thorp https://en.m.wikipedia.org/wiki/Edward_O._Thorp
    - phyalow 7y ago
      And barely a drop about TGS on the clearnet (aside from some paywalled BBG articles). They are basically the continuation of Ed Thorps business Princeton Newport Partners.
      - deepnotderp 7y ago
        TGS is extremely secretive https://www.google.com/amp/s/www.cnbc.com/amp/2014/05/09/mystery-13-billion-philanthropists-revealed.html https://www.google.com/amp/s/www.cnbc.com/amp/2014/05/09/mys...
    - look_lookatme 7y ago
      That comment links to a Youtube video I just watched and it's interesting that he directly confirms that there is an upper bound to the amount of money their model can manage and that they are comfortable limiting the scope of the game as a result. I guess that kind of honesty is easy when you are billionaires making money off your own money.
  - Nokinside 7y ago
    Bookmakers make their profit from the margin between the odds they give. Example. If the probability of outcome is exactly 50-50, he odds they give are 1.9 and 2.11 and they pocket the difference (completely fair odds without margin would be 2.0 both sides) It does not matter what the outcome is. If they balance the bets for and against perfectly, there is no risk. They generally try to balance their liability but having preferred winner can increase profits with some additional risk. If people place bets on the other side more, bookmakers move the odds to balance the bets from both sides. At some point the odds can be skewed so much that professional better can make money even after the bookmaker takes his margin. That money is taken from other betters. But if the bookmaker is not fully balanced it can come from the bookmakers pocket.
    - Maledictus 7y ago
      Thank you.
- deepnotderp 7y ago
  Total aum of all rentech funds is something like 110 billion and they've still managed to keep good returns on it.
- luc4sdreyer 7y ago
  > They can make 30-70% yearly return with low volatility. Can you source this? If it was that easy to get a consistent 50% return then why aren't more people doing it?
hummel 7y ago
If you have 1 billion on spare money, you can easily replicate their "black-boxes" strategies for fun. Some of my ML research work (I work for a hedge fund) points exactly on their trading behaviors and relations with different instruments during the past 25 years. Is not fraud or insider trading, is just everyone involved in the economic world benefits from this, that there is no real incentive to call it fraud. PS: If you have 1 billion to invest, call me ;)
- bumby 7y ago
  What sort of trading behaviors would one be looking at?
  - hummel 7y ago
    Where no one else is looking ;)
- codecritic 7y ago
  Call me if you only have $500 mil ;)
  - hummel 7y ago
    How long to get to $1 bill :p
lindig 7y ago
I've read this story about where part of Renaissance Technologies's alpha is coming from: buying and selling individual financial instruments entails paying taxes on the gains of each trade. It's more lucrative to buy and hold a well-performing fund. So allegedly RT advises such a fund what to buy and sell and simply holds it - such that it would only pay taxes once it sells. I'm not working in finance and can't make an informed comment but if true, tax optimisation would be a big part of the success.
- codecritic 7y ago
  Taxes on trading profits are not paid on each trade. A losing trade cancels out some profits from a winning trade, and tax will be assessed at the aggregate each financial year. Tax optimization contributes to the financial success operationally, but not is a core part of a quant fund's business.
  - lindig 7y ago
    My understanding was that there is a tax advantage (or loophole) in this construct of having influence over a fund's trading rather than doing the trades yourself and holding the fund instead. Would you argue there is no such advantage?
    - codecritic 7y ago
      Yes there is an advantage. US investors could be assessed at long-term rather than short-term capital gain rate by using such type of structures. I simply argue that this is not a core part of a quant fund's business. Any capable hedge fund could hire lawyers to set up such structures.

Nokinside 7y ago

Quant trading strategy like Medallion Fund uses don't scale. That's why Warren Buffet has more personal wealth than Medallion Fund has AUM. Outside finance, but similar business is sports betting syndicates. They can make 30-70% yearly return with low volatility. If you bet in 100 events per week and the expected return from each bet is just 0.5% (after expenses) you make consistent 30% return with very low volatility. If you make 1% per week you get almost 70%. That's great return for the investment but the size of investment is typically limited to tens of millions. Brokers don't like it and close accounts when they notice them. There is increasing amount of work involved when the amount of money increases.

Maledictus 7y ago
Do you have more information about this? I thought "the bank always wins" (or the broker in this case).
- melling 7y ago
  Jim Simons https://news.ycombinator.com/item?id=21423845 https://news.ycombinator.com/item?id=21423845 Maybe Ed Thorp too: https://en.m.wikipedia.org/wiki/Edward_O._Thorp https://en.m.wikipedia.org/wiki/Edward_O._Thorp
  - phyalow 7y ago
    And barely a drop about TGS on the clearnet (aside from some paywalled BBG articles). They are basically the continuation of Ed Thorps business Princeton Newport Partners.
    - deepnotderp 7y ago
      TGS is extremely secretive https://www.google.com/amp/s/www.cnbc.com/amp/2014/05/09/mystery-13-billion-philanthropists-revealed.html https://www.google.com/amp/s/www.cnbc.com/amp/2014/05/09/mys...
  - look_lookatme 7y ago
    That comment links to a Youtube video I just watched and it's interesting that he directly confirms that there is an upper bound to the amount of money their model can manage and that they are comfortable limiting the scope of the game as a result. I guess that kind of honesty is easy when you are billionaires making money off your own money.
- Nokinside 7y ago
  Bookmakers make their profit from the margin between the odds they give. Example. If the probability of outcome is exactly 50-50, he odds they give are 1.9 and 2.11 and they pocket the difference (completely fair odds without margin would be 2.0 both sides) It does not matter what the outcome is. If they balance the bets for and against perfectly, there is no risk. They generally try to balance their liability but having preferred winner can increase profits with some additional risk. If people place bets on the other side more, bookmakers move the odds to balance the bets from both sides. At some point the odds can be skewed so much that professional better can make money even after the bookmaker takes his margin. That money is taken from other betters. But if the bookmaker is not fully balanced it can come from the bookmakers pocket.
  - Maledictus 7y ago
    Thank you.
deepnotderp 7y ago
Total aum of all rentech funds is something like 110 billion and they've still managed to keep good returns on it.
luc4sdreyer 7y ago
> They can make 30-70% yearly return with low volatility. Can you source this? If it was that easy to get a consistent 50% return then why aren't more people doing it?

hummel 7y ago

If you have 1 billion on spare money, you can easily replicate their "black-boxes" strategies for fun. Some of my ML research work (I work for a hedge fund) points exactly on their trading behaviors and relations with different instruments during the past 25 years. Is not fraud or insider trading, is just everyone involved in the economic world benefits from this, that there is no real incentive to call it fraud. PS: If you have 1 billion to invest, call me ;)

bumby 7y ago
What sort of trading behaviors would one be looking at?
- hummel 7y ago
  Where no one else is looking ;)
codecritic 7y ago
Call me if you only have $500 mil ;)
- hummel 7y ago
  How long to get to $1 bill :p

lindig 7y ago

I've read this story about where part of Renaissance Technologies's alpha is coming from: buying and selling individual financial instruments entails paying taxes on the gains of each trade. It's more lucrative to buy and hold a well-performing fund. So allegedly RT advises such a fund what to buy and sell and simply holds it - such that it would only pay taxes once it sells. I'm not working in finance and can't make an informed comment but if true, tax optimisation would be a big part of the success.

codecritic 7y ago
Taxes on trading profits are not paid on each trade. A losing trade cancels out some profits from a winning trade, and tax will be assessed at the aggregate each financial year. Tax optimization contributes to the financial success operationally, but not is a core part of a quant fund's business.
- lindig 7y ago
  My understanding was that there is a tax advantage (or loophole) in this construct of having influence over a fund's trading rather than doing the trades yourself and holding the fund instead. Would you argue there is no such advantage?
  - codecritic 7y ago
    Yes there is an advantage. US investors could be assessed at long-term rather than short-term capital gain rate by using such type of structures. I simply argue that this is not a core part of a quant fund's business. Any capable hedge fund could hire lawyers to set up such structures.