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> You should know this. Anyone who worked in quantitative trading knows you can consistently outperform the S&P500/VTI/SPY over 20+ year horizons. Buy and hol

> You should know this. Anyone who worked in quantitative trading knows you can consistently outperform the S&P500/VTI/SPY over 20+ year horizons. Buy and hold passive US equity index funds gives a Sharpe ratio of ~0.7 with annual return of 8-10%. Meanwhile, high frequency trading does upward of Sharpe 10+ with 40-60% annual return, with 10+ year track records, of course. Hell, even Citadel hedge fund, after their ridiculous 50% performance fee, returned 19% _after fees_ annually to outside passive investors over 20 years. And this is billions of AUM, so the ”quant don’t scale” argument goes out the window. Why is nobody talking about this? Because the elite politicians and businessmen invest in these very quant funds, and thus suppress any news or regulation. Sucks for middle class professionals with <$5M net worth.

panarky 3y ago
Nobody's saying that alpha doesn't exist. But before you unleash your automated proprietary model, you should be able to explain why you think you have any edge whatsoever over your far better funded, far more experienced counterparties. And, no, getting great results from backtesting your model is not evidence of edge in the future against adversaries with access to better data than you have.
- eps 3y ago
  > you should be able to explain RenTech famously tried to understand exact mechanics of their successful models after they (models) proved to be successful. Sometimes they succeeded.
deleted 3y ago
[deleted]
metabro 3y ago
How many hedge funds are there? A few thousand? How many beat the s&p? Of those how much can be attributed statistically to skill rather than luck?
- chronic38202 3y ago
  > How many hedge funds are there? A few thousand? How many beat the s&p? The average index fund fails to outperform the S&P. How many passive index funds are there worldwide? Thousands? How many beat VTI or S&P500? Answer: QQQ and small cap. > Of those how much can be attributed statistically to skill rather than luck? If you are picking S&P as your champion, then I am allowed to pick a hedge fund as my champion. And Citadel outperforms S&P over 20+ year horizon. Citadel 19% vs S&P 10%.
  - metabro 3y ago
    >The average index fund fails to outperform the S&P This is a straw man as most people understand investing in indexes as buying a an index that tracks the s&p. >If you are picking S&P as your champion, then I am allowed to pick a hedge fund as my champion. You are making a false equivalence. The s&p is a proxy for the us market and therefore is a benchmark. It captures the captures the bets placed by all market participants including citadel. Citadel does something beyond buying and selling equities to generate that alpha. And it’s likely not just restricted to equities. Nonetheless they are an outlier. Which is the point I was making. Most people won’t do better than the us market in aggregate over a similar stretch of time.
1letterunixname 3y ago
Individuals tends to lack the data sources, low latency access, strats, controls, deep bench, and deep pockets to make serious money. It's less risky to pool money with other smart rich bastards at shops that perform. Division of labor, specialization of trade.
MuffinFlavored 3y ago
Slightly related: what are "big players" more likely to do to get exposure to the S&P directionally: 1. SPY shares long/short on margin/leverage 1. SPY options 1. SPX options 1. /ES e-mini futures 1. a blend of all Does one trump another in popularity?
- jleahy 3y ago
  ES trumps the others.
  - MuffinFlavored 3y ago
    Nice, thanks. I wonder by how much. Here is why I ask: a lot of technical analysis is done on psychological levels related to (in my opinion) SPY strike prices/SPX strike prices/SPX levels. Yet, /ES is typically 20 points ahead of SPX. For example, there can be a battle zone of support/resistance at 4900 on SPX, but /ES blew past it a day ago. I wasn't sure if one had more power/prominence than the other.
    - jleahy 3y ago
      The spread between SPX and ES is purely mechanical. It’s a function of expected future interest rates and dividends over the remaining life of the future. There is no such thing as support/resistance in reality.
      - MuffinFlavored 3y ago
        > There is no such thing as support/resistance in reality. Where would you say 80% of the daily trade volume comes from on average? The powers to be that I can think of: institutional investors / fund managers slowly reallocating (selling stuff off, buying stuff) daily high frequency trading algorithms trading shares back and forth to each other in an artificial way to generate synthetic volume/movement market makers reacting to option chain volume to remain neutral "hedge funds" / "quant funds" running their algorithm what do those algorithms look for at the "minute by minute" scale if not things like support/resistance/patterns/volume?
jairuhme 3y ago
Citadel isn't making the bulk of their alpha from simply finding an edge, its making trades in dark pools based on trade information they receive for executing trades. The individual trader won't be able to make trades at the speed required when finding small price discrepancies, nor would they have the capital to really earn anything.
- affyboi 3y ago
  Citadel securities is the market maker, Citadel is the hedge fund and doesn’t have access to data from the other side
  - SturgeonsLaw 3y ago
    Did they pinky promise not to access the data or are there some actual barriers in place?
    - User3456335 3y ago
      It being illegal seems like a pretty big barrier to me.
      - worik 3y ago
        > It being illegal seems like a pretty big barrier to me. That speaks volumes about your integrity. Good on you! But it is not true.
        User3456335 3y ago
        I wouldn't be so sure about that. Also, even if people cross the barrier it doesn't mean it is not there or isn't big. But thanks for the compliment!
chaosmonger7 3y ago
[flagged]
affyboi 3y ago
> Hell, even Citadel hedge fund, after their ridiculous 50% performance fee Do you have a source?

panarky 3y ago

Nobody's saying that alpha doesn't exist. But before you unleash your automated proprietary model, you should be able to explain why you think you have any edge whatsoever over your far better funded, far more experienced counterparties. And, no, getting great results from backtesting your model is not evidence of edge in the future against adversaries with access to better data than you have.

eps 3y ago
> you should be able to explain RenTech famously tried to understand exact mechanics of their successful models after they (models) proved to be successful. Sometimes they succeeded.

deleted 3y ago

[deleted]

metabro 3y ago

How many hedge funds are there? A few thousand? How many beat the s&p? Of those how much can be attributed statistically to skill rather than luck?

chronic38202 3y ago
> How many hedge funds are there? A few thousand? How many beat the s&p? The average index fund fails to outperform the S&P. How many passive index funds are there worldwide? Thousands? How many beat VTI or S&P500? Answer: QQQ and small cap. > Of those how much can be attributed statistically to skill rather than luck? If you are picking S&P as your champion, then I am allowed to pick a hedge fund as my champion. And Citadel outperforms S&P over 20+ year horizon. Citadel 19% vs S&P 10%.
- metabro 3y ago
  >The average index fund fails to outperform the S&P This is a straw man as most people understand investing in indexes as buying a an index that tracks the s&p. >If you are picking S&P as your champion, then I am allowed to pick a hedge fund as my champion. You are making a false equivalence. The s&p is a proxy for the us market and therefore is a benchmark. It captures the captures the bets placed by all market participants including citadel. Citadel does something beyond buying and selling equities to generate that alpha. And it’s likely not just restricted to equities. Nonetheless they are an outlier. Which is the point I was making. Most people won’t do better than the us market in aggregate over a similar stretch of time.

1letterunixname 3y ago

Individuals tends to lack the data sources, low latency access, strats, controls, deep bench, and deep pockets to make serious money. It's less risky to pool money with other smart rich bastards at shops that perform. Division of labor, specialization of trade.

MuffinFlavored 3y ago

Slightly related: what are "big players" more likely to do to get exposure to the S&P directionally: 1. SPY shares long/short on margin/leverage 1. SPY options 1. SPX options 1. /ES e-mini futures 1. a blend of all Does one trump another in popularity?

jleahy 3y ago
ES trumps the others.
- MuffinFlavored 3y ago
  Nice, thanks. I wonder by how much. Here is why I ask: a lot of technical analysis is done on psychological levels related to (in my opinion) SPY strike prices/SPX strike prices/SPX levels. Yet, /ES is typically 20 points ahead of SPX. For example, there can be a battle zone of support/resistance at 4900 on SPX, but /ES blew past it a day ago. I wasn't sure if one had more power/prominence than the other.
  - jleahy 3y ago
    The spread between SPX and ES is purely mechanical. It’s a function of expected future interest rates and dividends over the remaining life of the future. There is no such thing as support/resistance in reality.
    - MuffinFlavored 3y ago
      > There is no such thing as support/resistance in reality. Where would you say 80% of the daily trade volume comes from on average? The powers to be that I can think of: institutional investors / fund managers slowly reallocating (selling stuff off, buying stuff) daily high frequency trading algorithms trading shares back and forth to each other in an artificial way to generate synthetic volume/movement market makers reacting to option chain volume to remain neutral "hedge funds" / "quant funds" running their algorithm what do those algorithms look for at the "minute by minute" scale if not things like support/resistance/patterns/volume?

jairuhme 3y ago

Citadel isn't making the bulk of their alpha from simply finding an edge, its making trades in dark pools based on trade information they receive for executing trades. The individual trader won't be able to make trades at the speed required when finding small price discrepancies, nor would they have the capital to really earn anything.

affyboi 3y ago
Citadel securities is the market maker, Citadel is the hedge fund and doesn’t have access to data from the other side
- SturgeonsLaw 3y ago
  Did they pinky promise not to access the data or are there some actual barriers in place?
  - User3456335 3y ago
    It being illegal seems like a pretty big barrier to me.
    - worik 3y ago
      > It being illegal seems like a pretty big barrier to me. That speaks volumes about your integrity. Good on you! But it is not true.
      - User3456335 3y ago
        I wouldn't be so sure about that. Also, even if people cross the barrier it doesn't mean it is not there or isn't big. But thanks for the compliment!

chaosmonger7 3y ago

[flagged]

affyboi 3y ago

> Hell, even Citadel hedge fund, after their ridiculous 50% performance fee Do you have a source?