TMJ Partners 金融ニュースブログ: March 2020

Friday, March 13, 2020

Friday Feature Book Review: "A Hedge Fund Tale" by Barton Biggs バートン・ビッグス: ウォール街のイカロス─小説ヘッジファンド

This book is a hedge fund trader's personal story, and his inner drive without compromise. It is about going 100% for the hedge fund dream. It is about total self-driven dedication to a clear career goal in New York City. All of this and much more, is really critical for being successful in "Hedgistan" also known as Greenwich, Connecticut nearby. He is both winning and losing along the way. It shows a clear window into how New York grows top hedge fund traders who come from all parts of the US, and indeed the world. It is a city that is a magnet for the world's financial talent as the rewards are unrivalled and unequalled.

This is a great read that represents a very common story of how determined people who stand out in any way, can succeed via hard work. If some hedge fund entrepreneur has fierce dedication & discipline, then a chance is always there. Outstanding competitive individuals with a background in sports or the military, can often make this transition. It is a career move into the most competitive areas of finance today, meaning of course hedge funds.

The main character starts out as a high school athlete. He is from the rural countryside of the USA, and is lucky enough to find a mentor in a local HNWI(High Net Worth Individual). He works for him part-time as a teen, and builds a hunger for finance. This takes him to the highest levels of New York City and then Greenwich, the ultimate home beacon of "Hedgistan", the great land of the best hedge funds.

The private golf & country club memberships, multi-million dollar mansions, and luxury cars are all part of the lifestyle. Where does lifestyle end? When do wants become needs? This is a question many ask themselves, along with all of the private school fees, and other high-end lifestyle costs. I have seen many true similar stories here in Tokyo, Hong Kong & Singapore. All are similar to this fictional tale in many ways that reminded me of various real hedge fund careers I have come to know in more detail where beach homes or ski chalets in Niseko, Shimoda or Phuket compare well to St Barths, Gstaad or Vail.

The Top 3 Takeaways that impact any reader are:

1) The first thing we learn is that the basic core skill set can be grown and be honed. Athletes know how to perform, and hedge fund traders share this trait.

2) The location of a top performer can start from anywhere, but the destination is usually only where the money is, a financial capital.

3) No matter how much money you make, it is more a lens that reflects than who you already are. Money does not make you into something, it only reflects what you are on a bigger wider scale.

If you are a financial information junky like me, this will work. If have the same kind of never satisfied need for lifestyle voyeur escapes, you will not be disappointed. There is plenty to marvel over. The spending and glamour are very much highlighted. There is indeed plenty of bling at the high end of the scale. Ultimately, this is very satisfying for those looking for this kind of escape! Sadly, this was the last novel by the late great Barton Biggs, the author. He was a Wall Street legend for many decades, and left this great gift for a new generation of financial young turks to read and learn from for later inspiration. Finance by its nature is ever changing, and constantly evolving. This is was a great piece of work and a wonderful read, Highly Recommended!

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Friday, March 6, 2020

Friday Feature Book Review: The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution Gregory Zuckerman 市場を解決した男：ジム・サイモンズがクオンツ革命を開始した方法: グレゴリー・ザッカーマン

This book is an amazing, and incredibly well researched. Luckily, it is also aimed at a non-technical reader who has a true interest in quantitative trading. However, even if you are technical, you will learn terrific tidbits about how a pioneer figured out conceptual hurdles for AI, Data Sets and Machine Learning. He even did so long before the common laptop had the power to do the basic quant needs of today. Jim Simons is a hybrid human with a love of math, love of making money, and a love of doing things his own way. Finding a way to trade financial markets without the human emotion at the center, has always been his goal. The performance of Renaissance Technologies has been awe inspiring. The the successful ending was not the point, only confirmation of a very difficult journey. Before he proved it was possible, quant trading was regarded as suspicious. Not to be trusted. Certainly not well understood. That environment does not exist today, but it did before. Some even called it "blackbox voodoo". Many hedge funds aim for a very consistent return that has a sharpe ratio of 2 or better. Renaissance Technologies never failed to aim higher, much higher. Back in 2003, theirs was 6! Then in 2004 it was 7.5! No hedge fund today even aims for that kind of level, not AQR, not Two Sigma, no existing hedge fund firm.

It is his thinking progress, the bigger picture that you learn about. The concepts that he faced can be reused to overcome current hurdles within quant trading. Algo based results are only as good as the data they are based on. Data sets need to be cleaned, in order to be effective. It is like how a top chef needs to have the freshest ingredients ready, before cooking the perfect meal. You also learn about the key minds that Jim can attract, and what motivates them to drive themselves. It is a rare leader who can tap into why people want to do something beyond a simple sizable paycheck. The accomplishment of the goal is what Jim shares with his top tier Math whiz colleagues.

He loves math, numbers and puzzles. He could gather many others with the same driven mindset. That is a rare talent that is never easily done in large numbers. This is not one or two guys, but many. There are hundreds of employees, and all have this driven sense to propel themselves to innovate machine learning, data science and algorithmic perfection.

What I forget when reading is the context of what the world was like, when Jim Simons began in 1978. There was no internet. There were no digital market feeds. There were not even basic PCs using Microsoft Windows! Yet, that is how he began, and how he build the greatest quantitative trading machine that the world has ever seen. Between 1988-2018, Renaissance Technologies averaged 66% return annually! That is a very long 30 years of top performance. It is also using multi-billion sized assets, not some petty cash balance to test something with.

The Top 5 Takeaways from this book that impact any reader are:

1) There is no easy way to innovate and create an industry without many years of hard work and mistakes. Often years of failure, setbacks and self doubt happen before seeing any clear signs of success. That fortitude is what many admire. This is what Jim Simons has much more than most.

2) Renaissance Technologies were not the first to do quant trading in size. David E. Shaw got that honour, and many others followed, including "Beat the dealer" quant guru Edward Thorpe. They played catch up, and came out from the middle of the pack to overcome all. That is never smooth or easy.

3) People, culture and trust are the keys to doing great things. Quant trading is no different. Jim Simons always kept his team focused on making the track record better and encouraging his team to improve performance. He handled the investors and the frustrations directly.

4) Can you understand what numbers can do? Can you understand from a high level of mathematics, what patterns are possible? Can you figure out what they may be? Can you see the trading returns clearly from correlations that many others miss? Jim can.

5) Can a math mind gifted with talent back in 1978, see the future of quantitative trading potential? Can it also be seen from the progress made from speech recognition experiments into text being done at IBM's lab in 1984? All of these things, Jim Simons could see. Few others could.

I think it must be the mindset of the military code cracker that gave him an edge. That along with a comfort with secrecy. Jim Simons also brings a focus on clear goals that made him into the quant revolution's clear leader in the financial world today. I kept on saying wow to myself several times. Imagine 40 years ago thinking that the concept of speech recognition by computers, would be key to machine learning and AI. That kind of insight is just not that common. Especially when computers had yet got to a point where they could even execute many of the key functions needed to build that quant trading foundation. When people have ideas like that so early on, I just say wow. I said that several times while reading. Highly recommended!