And so it begins...

JSOP said:
I don't think most people do otherwise they wouldn't be so frustrated when their "edge" based on their quant analysis is challenged.
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I have to assume you are implying that I am frustrated by this? Why, it's all part of the great circle of life - alphas get discovered, live and eventually die. That's true of stuff based on quant analysis, fundamental stock analysis or whatever else. If you can't fathom that pretty much every idea is transitory, you have no place in this business. I am in a different asset class and in a different strategy set, but in my world strategies have been discovered and then died a slow agonizing death.

Also, there is a legion of people, most of them smarter then you and I, doing all sorts of things. Most of those things do not work. Some work and then stop working. But it's childish to assume that you (or I or whoever) is the only guy who "understands how it is" and everyone else is an idiot. Hearing that frustrates me, yes.
 
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sle said:
I have to assume you are implying that I am frustrated by this? Why, it's all part of the great circle of life - alphas get discovered, live and eventually die. That's true of stuff based on quant analysis, fundamental stock analysis or whatever else. If you can't fathom that pretty much every idea is transitory, you have no place in this business. I am in a different asset class and in a different strategy set, but in my world strategies have been discovered and then died a slow agonizing death.

Also, there is a legion of people, most of them smarter then you and I, doing all sorts of things. Most of those things do not work. Some work and then stop working. But it's childish to assume that you (or I or whoever) is the only guy who "understands how it is" and everyone else is an idiot. Hearing that frustrates me, yes.
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Well like I said, *most* people don't understand how it is or at least tries to believe what they believe what it is and/or tries to convince others how everything is what they believe to be according to their analysis. I never stated that you and I are the ONLY people who "understand how it is" in any of my statements so no need for this "frustration" now. LOL
 
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sle said:
Of course they did, it's a very scientific way of thinking about the world. That was not their problem at all - it's not like they lost their alpha all at once. Pretty much every one of their trades was a money maker in the long run. In fact, people still do the same trades except with a bit less flare.

They failed primarily because they took on too much risk, were crowding their own positions and scared the sh*t out of the counterparties. The resulting feedback loop was vicious (and great for those of us who manager to get involved at the right time).
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This is a distinction without a difference

They took on too much risk precisely because they didn't understand what needs understanding, and neither do you. The vast majority of the quant world edifice is built is on shaky epistemological grounds.
 
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Asness writes towards the end of the piece:

Does this painful year presage a bear market for traditional assets, like in 1999-2000 and 2007-2008?

"It's indeed true that our most difficult periods have come about 10 years part, now again in 2018. It's also true that the prior two came before the severe equity bear markets of 2000 to 2002, and late 2007 to early 2009. Frankly, while I want to cover all common questions, I don't have much to add here. Two data points, and zero theory, makes for a thin gruel for forecasting..."


This is an example of not understanding what needs understood. While it is of course true that those two data points by themselves are meaningless, what is extremely meaningful is the following: both of those situations, 2000 and 2007, in addition to recessions in the early 80s, were preceded by dangerous tightening in financial conditions, in turn the result of misguided Fed policy fueled by Phillips-curve delusions. THAT reality is what Cliff needs to get a hold of, but being a quant boxed in by his paradigmatic grid, he is unable to recognize the issue. A Druckenmiller or Soros however would have no issues in anticipating the danger to their portfolios, being more grounded in reality and less in the false confidence created by high powered quant work
 
nooby_mcnoob said:
Are you are echoing the sentiments? The reference to Ragnarok is bang on.
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Ragnarok included destruction and rebirth. I definitely foresee the former, with the latter being a bit away.

nooby_mcnoob said:
I'm curious how you guys fared in Oct.
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I personally did great since the festivities started, I love it when the people are hurting. Not sure how the firm did (nor do I really care, TBH, given the structure), but my guess would be somewhere between bad and horrible. The numbers coming out of the prime brokers are downright terrifying, not only in quant but more or less all over.

Maverick1 said:
They took on too much risk precisely because they didn't understand what needs understanding, and neither do you. The vast majority of the quant world edifice is built is on shaky epistemological grounds.
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Where you running any risk at the time, out of curiosity? From my perspective (I was junior at the time with a smaller (well, but modern standards tiny) rates book) their blow-up wasn't significantly different from any other over-leveraged monkey, e.g. the great commodity blowups. Bunch of smart guys took oversize risk based on some "idea" (quant or fundamental does not matter, really) and predictably bit more than they could chew. The street is littered with stories of "smart risk" and "intelligent hedging", e.g the Morgan Stanley trade (I was observing it first hand).

Maverick1 said:
They took on too much risk precisely because they didn't understand what needs understanding, and neither do you
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Nobody out there understands everything, not even Nassim Taleb :) We are all a product of our experience (mine is "discretionary-systematic", as opposed to a true quant or true discretionary but that is besides the point) and we judge the world from that particular perch. In general, most developed professionals have a tendency to underestimate the skill of the others - a macro guy will point how non-macro people are "missing the big picture", quants will point out how discretionary people are "non-rigorous", long-short will point out at how stat arb guys ignore the fundamentals etc. I am merely pointing out that people doing whatever strategy are fairly smart and probably have thought of a lot of points you are bringing up and then some.
 
They may have thought of the points, but here's the problem: (i) they don't believe, which is all that truly matters, since we all trade our beliefs and (ii) you presuppose in your risk-equivalence stance that there cannot truly be a sounder approach to risk-taking. And so, they are losing and will continue to lose, until enough time has gone by and people realize that pure quant was never a valid approach to the market with one or two rare exceptions.

Now, a hybrid approach, that makes sense yes. Using quant analysis as an adjunct to supplement (but not as the basis of) an approach grounded in reality (fundamentals) should over the long run provide a better map of the terrain than anything else

I think there are more than good odds that PTJ is regretting his move right now and will end up reconfiguring again. P72 will likely cut back allocation real soon if not already as performance underwhelms...
 
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Maverick1 said:
They may have thought of the points, but here's the problem: (i) they don't believe, which is all that truly matters, since we all trade our beliefs and (ii) you presuppose in your risk-equivalence stance that there cannot truly be a sounder approach to risk-taking. And so, they are losing and will continue to lose, until enough time has gone by and people realize that pure quant was never a valid approach to the market with one or two rare exceptions.

Now, a hybrid approach, that makes sense yes. Using quant analysis as an adjunct to supplement (but not as the basis of) an approach grounded in reality (fundamentals) should over the long run provide a better map of the terrain than anything else
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Perhaps, hybrid is the way, but I do not see how it can help me. Every few months I will try report how my algos are doing. They are fully automated, no manual intervention apart from validating on brokers end when events happen (entry, stop loss submission, trailing and etc).
 
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