Has good insights into trading. I have been to his museum and it is amazing - www.mona.net.au
From afr.com:
The eccentric numerati David Walsh ascended â randomly in his telling â from humble origins in a housing estate in Hobartâs blue-collar suburbs to become among the most successful professional gamblers in history alongside his friend, mentor and fellow Tasmanian, Zeljko Ranogajec.
Walsh and Ranogajec took on the might of global gaming markets and managed to consistently win over three decades. Much like the most advanced hedge funds, which employ armies of PhDs to identify patterns in financial markets, Walsh and Ranogajecâs consortium, called the Bank Roll, created statistical models that allowed them to exploit mispricings in betting odds wherever they could be found.
The Bank Rollâs quantitative edge, which they refined over time to capitalise on and adapt to relentless technological change, has allowed them to individually generate hundreds of millions of dollars in profits across a multiplicity of countries and gambling domains.
These rivers of gold also enabled Walsh to personally invest $75 million in a futuristic, copper-coloured fortress on Hobartâs foreshore, which houses a radical contemporary art collection.
It was described last year by CNN as the âworldâs most far out museumâ.
The Museum of Old and New Art (called MONA), which shocks the senses with graphic projections of birth, life, death and sex portrayed in every imaginable way, has become Tasmaniaâs premier tourist destination and galvanised critical acclaim.
You know you are entering into an unhinged alternative reality when you wander by Walshâs two car spaces emblazoned with bold signs declaring they belong to God and Godâs Mistress. A hedonistically enhanced AMG Mercedes sits in each spot.
Walsh says he established MONA, which he says loses millions each year, to repay a âdebt for getting lucky in a way that does no one any goodâ.
UNDERGROUND CAVES
Its total cost is estimated to exceed $150 million once the extraordinary art that sits in its labyrinthine subsurface caverns, carved out of 250 million-year-old Triassic sandstone, is accounted for.
âWhen you trade derivatives or bet on horse racing, you have not actually made anything,â Walsh accepts. âThe world is in no way a better place because you have extracted wealth from the market and lined your own pockets. In this case, I did at least one thing that might have made me feel a _little bit better.â
He says the nexus between his abstract professional life and his emergence as an internationally recognised art collector is the pursuit of learning.
âArt can make very imprecise statements that are very profound and communicate them quickly. It overloads all the senses and emotionsânot just our intellectual capacity,â he says. âAs someone who was a kid who struggled with emotional expression, the sort of person that many people these days describe as autistic, art was a fascinating field that was unknown to me, and the more I explored it the more I realised I did not know.â
While much energy has been expended documenting Walshâs personal history, idiosyncrasies and the story behind MONA, he has never really lifted the lid on his investment philosophy.
That is, how he has managed to continuously beat the most competitive betting markets in the world.
After several unsuccessful inquiries, Walsh agreed to engage with AFR Weekend on this subject. Asked what his advice is to any young Australian seeking to emulate his efforts, Walsh bluntly responds: âThe pursuit of excellent is a load of shit.â
SKEWED EXPECTATIONS
He believes many of us get deluded by a phenomenon known as survivorship bias, where we only see the winners outputted by random life processes and do not properly observe the losers.
This skews our expectations around the likelihood of success.
âIf you ask Rafael Nadal whether tennis is a good modality to explore in life, he would probably respond âyes, itâs fantastic and has served me wellâ.
âYet at any given time there are hundreds of millions of kids trying to be tennis players. Luck and ability, and the nuanced interaction of nature and nurture, all play a part and result in maybe 100 to 200 making a living.â
âThe average living across tennis players is very low and most are doing things that perturb significantly their chances of succeeding in other domains.â
Walsh contrasts tennisâs âhigh varianceâ outcomes, which he equates to his own improbable path, to the prospects in accountancy.
âEveryone can do a half decent job. Everyone can make a living. And the average income is greater than the mean income for tennis players and, importantly, it is a low variance, or higher probability, result.â
His advice to aspirational Australians is, in short, ânot to live like I didâ.
GHOSTS OF ME
âIt is misleading talking to me if you do not acknowledge all the ghosts of me that did similar things but ended up with shitful outcomes, to coin a phrase,â he says.
âI donât think there is a specific talent I possess other than the awareness that my success was loaded by the imposition of good fortune.
âWhat got me into my situation was essentially being in a town where the casino was just down the road from the university. It also helped having pretty good computer and mathematical skills, but mainly from having excellent table tennis skills.â
Walshâs proficiency at table tennis brought him to the attention of the more commercially inclined Zeljko Ranogajec, who would help him apply his mathematical talents to the gambling tables.
However, this is where luck leaves Walshâs story.
âOnce I got a winning gambling strategy, or once I had prosecuted it enough so I was not engaging too much risk, there was little luck involved. I was mathematically on a pretty rock-solid path,â he says.
His providence was not about winning bets once they had been placed, but âalighting on a winning or mathematically appropriate strategy in the first placeâ.
LIMITED DOWNSIDE
A key feature of the markets Walsh and his partners invest in is that they are characterised by randomly âindependent eventsâ. Specifically, the occurrence of one event does not influence the chance of the other and they therefore have âfinite varianceâ, or limited downside risk.
âGambling has the huge benefit of having independent events â I cannot get blown up by the black swans that plague financial markets.â
He says deploying mathematics in âequities markets that may have infinite variance outcomes makes working out probabilities much harderâ.
âYou donât know whether you are summing a sequence of fractions that add to one or if they add to infinity, because financial markets have non-independent [or potentially related] events,â he says.
The bankable independence of results in gambling markets is the âcomponent of our strategy that gives me the most securityâ, Walsh says.
âIt is even better in games like black jack, where the events are not only independent but also negatively correlated â your chance of winning goes up if you lost the previous hand because there are an excess of cards remaining that are advantageous to you.â
He is critical of the billionaires printed in financial markets who âoften make money in the low-probability, high-opportunity outcomes that are essentially exhibiting âcorrelated parlaysâ [where one event significantly influences the probability of another].
âCorrelated parlays make people look smart and can create a whole bunch of rich folks, but there was probably nothing but pathologies in the financial data.â
WISDOM OF CROWDS
Asked about exactly what his teamâs âedgeâ has been over the years, Walsh distils it down to embracing the wisdom of crowds.
âYou can work out some complex algorithm to predict horse racing odds using multinominal logistic regression,â Walsh says. âBut the result would significantly underperform the public odds.
âThe key is that the public odds must be included in your model. The best models are not predictive models per se, but âperturbationâ models that start with the assumption that the public is right and then work out what small errors they might make.
âThe public odds are not just an important signal â they are a remarkably efficient signal.â
He cites the example of the former Russian chess grandmaster Boris Spassky, who played and lost to the Russian public in a game of chess.
He describes the publicâs ability to make accurate collective decisions as an âemergent strategyâ, like birds flocking or democracies (which form not in the mind of one individual, but through the interactions of many).
âI am saying there is wisdom in crowds beyond the point you can model without explicitly incorporating it.â
How does this system work in practice? âLetâs talk about Sydney race night on Saturday,â Walsh explains.
âWe might have a model of what we think the probabilities should be that includes the public odds.
âWe essentially wager on those events that have better chances than the public thinks, which gives us a positive return expectation.â
From afr.com:
The eccentric numerati David Walsh ascended â randomly in his telling â from humble origins in a housing estate in Hobartâs blue-collar suburbs to become among the most successful professional gamblers in history alongside his friend, mentor and fellow Tasmanian, Zeljko Ranogajec.
Walsh and Ranogajec took on the might of global gaming markets and managed to consistently win over three decades. Much like the most advanced hedge funds, which employ armies of PhDs to identify patterns in financial markets, Walsh and Ranogajecâs consortium, called the Bank Roll, created statistical models that allowed them to exploit mispricings in betting odds wherever they could be found.
The Bank Rollâs quantitative edge, which they refined over time to capitalise on and adapt to relentless technological change, has allowed them to individually generate hundreds of millions of dollars in profits across a multiplicity of countries and gambling domains.
These rivers of gold also enabled Walsh to personally invest $75 million in a futuristic, copper-coloured fortress on Hobartâs foreshore, which houses a radical contemporary art collection.
It was described last year by CNN as the âworldâs most far out museumâ.
The Museum of Old and New Art (called MONA), which shocks the senses with graphic projections of birth, life, death and sex portrayed in every imaginable way, has become Tasmaniaâs premier tourist destination and galvanised critical acclaim.
You know you are entering into an unhinged alternative reality when you wander by Walshâs two car spaces emblazoned with bold signs declaring they belong to God and Godâs Mistress. A hedonistically enhanced AMG Mercedes sits in each spot.
Walsh says he established MONA, which he says loses millions each year, to repay a âdebt for getting lucky in a way that does no one any goodâ.
UNDERGROUND CAVES
Its total cost is estimated to exceed $150 million once the extraordinary art that sits in its labyrinthine subsurface caverns, carved out of 250 million-year-old Triassic sandstone, is accounted for.
âWhen you trade derivatives or bet on horse racing, you have not actually made anything,â Walsh accepts. âThe world is in no way a better place because you have extracted wealth from the market and lined your own pockets. In this case, I did at least one thing that might have made me feel a _little bit better.â
He says the nexus between his abstract professional life and his emergence as an internationally recognised art collector is the pursuit of learning.
âArt can make very imprecise statements that are very profound and communicate them quickly. It overloads all the senses and emotionsânot just our intellectual capacity,â he says. âAs someone who was a kid who struggled with emotional expression, the sort of person that many people these days describe as autistic, art was a fascinating field that was unknown to me, and the more I explored it the more I realised I did not know.â
While much energy has been expended documenting Walshâs personal history, idiosyncrasies and the story behind MONA, he has never really lifted the lid on his investment philosophy.
That is, how he has managed to continuously beat the most competitive betting markets in the world.
After several unsuccessful inquiries, Walsh agreed to engage with AFR Weekend on this subject. Asked what his advice is to any young Australian seeking to emulate his efforts, Walsh bluntly responds: âThe pursuit of excellent is a load of shit.â
SKEWED EXPECTATIONS
He believes many of us get deluded by a phenomenon known as survivorship bias, where we only see the winners outputted by random life processes and do not properly observe the losers.
This skews our expectations around the likelihood of success.
âIf you ask Rafael Nadal whether tennis is a good modality to explore in life, he would probably respond âyes, itâs fantastic and has served me wellâ.
âYet at any given time there are hundreds of millions of kids trying to be tennis players. Luck and ability, and the nuanced interaction of nature and nurture, all play a part and result in maybe 100 to 200 making a living.â
âThe average living across tennis players is very low and most are doing things that perturb significantly their chances of succeeding in other domains.â
Walsh contrasts tennisâs âhigh varianceâ outcomes, which he equates to his own improbable path, to the prospects in accountancy.
âEveryone can do a half decent job. Everyone can make a living. And the average income is greater than the mean income for tennis players and, importantly, it is a low variance, or higher probability, result.â
His advice to aspirational Australians is, in short, ânot to live like I didâ.
GHOSTS OF ME
âIt is misleading talking to me if you do not acknowledge all the ghosts of me that did similar things but ended up with shitful outcomes, to coin a phrase,â he says.
âI donât think there is a specific talent I possess other than the awareness that my success was loaded by the imposition of good fortune.
âWhat got me into my situation was essentially being in a town where the casino was just down the road from the university. It also helped having pretty good computer and mathematical skills, but mainly from having excellent table tennis skills.â
Walshâs proficiency at table tennis brought him to the attention of the more commercially inclined Zeljko Ranogajec, who would help him apply his mathematical talents to the gambling tables.
However, this is where luck leaves Walshâs story.
âOnce I got a winning gambling strategy, or once I had prosecuted it enough so I was not engaging too much risk, there was little luck involved. I was mathematically on a pretty rock-solid path,â he says.
His providence was not about winning bets once they had been placed, but âalighting on a winning or mathematically appropriate strategy in the first placeâ.
LIMITED DOWNSIDE
A key feature of the markets Walsh and his partners invest in is that they are characterised by randomly âindependent eventsâ. Specifically, the occurrence of one event does not influence the chance of the other and they therefore have âfinite varianceâ, or limited downside risk.
âGambling has the huge benefit of having independent events â I cannot get blown up by the black swans that plague financial markets.â
He says deploying mathematics in âequities markets that may have infinite variance outcomes makes working out probabilities much harderâ.
âYou donât know whether you are summing a sequence of fractions that add to one or if they add to infinity, because financial markets have non-independent [or potentially related] events,â he says.
The bankable independence of results in gambling markets is the âcomponent of our strategy that gives me the most securityâ, Walsh says.
âIt is even better in games like black jack, where the events are not only independent but also negatively correlated â your chance of winning goes up if you lost the previous hand because there are an excess of cards remaining that are advantageous to you.â
He is critical of the billionaires printed in financial markets who âoften make money in the low-probability, high-opportunity outcomes that are essentially exhibiting âcorrelated parlaysâ [where one event significantly influences the probability of another].
âCorrelated parlays make people look smart and can create a whole bunch of rich folks, but there was probably nothing but pathologies in the financial data.â
WISDOM OF CROWDS
Asked about exactly what his teamâs âedgeâ has been over the years, Walsh distils it down to embracing the wisdom of crowds.
âYou can work out some complex algorithm to predict horse racing odds using multinominal logistic regression,â Walsh says. âBut the result would significantly underperform the public odds.
âThe key is that the public odds must be included in your model. The best models are not predictive models per se, but âperturbationâ models that start with the assumption that the public is right and then work out what small errors they might make.
âThe public odds are not just an important signal â they are a remarkably efficient signal.â
He cites the example of the former Russian chess grandmaster Boris Spassky, who played and lost to the Russian public in a game of chess.
He describes the publicâs ability to make accurate collective decisions as an âemergent strategyâ, like birds flocking or democracies (which form not in the mind of one individual, but through the interactions of many).
âI am saying there is wisdom in crowds beyond the point you can model without explicitly incorporating it.â
How does this system work in practice? âLetâs talk about Sydney race night on Saturday,â Walsh explains.
âWe might have a model of what we think the probabilities should be that includes the public odds.
âWe essentially wager on those events that have better chances than the public thinks, which gives us a positive return expectation.â
