Very funny. If it's true that all the talk of computers and statistical modelling at Bridgewater is bullshit, and it's just a vanilla hedge fund, then it reminds me of the story from The Man Who Solved the Market that Renaissance was founded as a quant fund but none of the algorithms actually worked, so Simons just traded on hunches until D.E Shaw started competing with them years later.
A lot of people think of this in too much of a binary fashion. Hunches vs Quant.
It's really more of a continuum.
Or you could broadly tranche into 4 categories - 1) pure hunches, 2) pure quant ML stuff (I don't know what this signal even means, but computer say number go up), 3) hunches that you validate with data (kind of like the scientific process), and 4) the reverse - quant ML/data that you validate with logic/hunches (computer says number go up, but why would this pattern exist, who is on other side of this, what are the tail risks, etc).
>A lot of people think of this in too much of a binary fashion. Hunches vs Quant.
It's really more of a continuum.
People say the same thing about fundamental analysis versus technical. It's not a binary; everyone is both, and only vary on how much they lean to one side.
It’s the same except that your avg tech/fund. analyst isn’t sitting on 10gb private fiber global data networks.
Hunches and quants tend to work when you have that much data and compute firepower.
Setup is closest akin to what insurance and social media companies run. When you have that data and speed, you’ll do well. Secret isn’t the IP, it’s having access to the infra that can make use of it.
Siren Servers/Jaron Lannier describes it in generalities well.
Was just thinking the same thing. I remember that they went through a long time period to get their algorithms to work, so maybe that's what OP means. I also remember that they found some algorithms that work but they don't know why, but they keep running them anyways.
I definitely do not remember anything about Simon making trades based on 'hunches'
I recall Simons saying that early on in his trading career with his partners, they traded on hunches as opposed to purely statistically. He said later on they did not, it was purely algorithmic later on.
Page 59: "Even as Simons and his colleagues were uncovering Soviet secrets, Simons was nurturing one of his own. Computing power was becoming more advanced by securities firms were slow to embrace the new technology.... Simons decided to start a company to electronically trade and research stocks, a concept with the potential to revolutionize the industry."
Page 79: "In 1978, Simons left academia to start his own investment firm focusing on currency trading."
Page 99: "In the following days, Simons emerged from his funk, more determined than ever to build a high-tech trading system guided by algorithms, or step-by-step computer instructions, rather than human judgment. Until then, Simons and Baum had relied on crude trading models, as well as their own instincts, an approach that had left Simons in crisis."
Page 101: "The regulators somehow missed the humor in Simons's misadventure. They closed out his potato positions, costing Simons and his investors millions of dollars. Soon, he and Baum had lost confidence in their system. They could see the Piggy Basket's trades and were aware when it made and lost money, but Simons and Baum weren't sure why the model was making its trading decisions. [...] In 1980, Hullender quit..."
Page 102: "With Hullender gone and the Piggy Basket malfunctioning, Simons and Baum drifted from predictive mathematical models to a more traditional trading style."
Page 105: "Their traditional trading approach was going so well that, when the boutique next door closed, Simons rented the space... Simons came to see himself as a venture capitalist as much as a trader."
[Various things happen. Renaissance makes and then loses a bunch of money. It is now 1985]
Page 114: "Simons wondered if the technology was yet available to trade using mathematical models and present algorithms, to avoid the emotional ups and downs that come with betting on markets with only intelligence and intuition."
Page 201: "By 1990, Simons had high hopes Frey and Kepler might find success with their stock trades. He was even more enthused about his own Medallion fund and its quantitative-trading strategies... Competition was building, however, with some rivals embracing similar trading strategies. Simons's biggest competition figured to come from David Shaw."
So my timeline was a little off: Renaissance was largely a traditional fund from 1978 until AxCom in 1985, with D.E. Shaw only in 1990.
Renaissance has a very effective legal dept. I'm sure their math stuff is also great, but I was struck a bit reading an old story about the other side of one of their lawsuits/investments regarding a small town. Part of the business is definitely squeezing out an extra 5-10% from distressed exotic assets bought at discounts.
The mythology focusing on math/quant I think is a feature, for them.
Apologies for not finding the original; my $SE appears to be dominated by a recent tax deal instead.
