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jerryking : alpha   9

BlackRock bulks up research into artificial intelligence
February 19, 2018 | FT | Robin Wigglesworth in New York and Chris Flood in London.

BlackRock is establishing a “BlackRock Lab for Artificial Intelligence” in Palo Alto, California.....The lab will “augment our current teams and accelerate our efforts to bring the benefits of these technologies to the entirety of the firm and to our clients”.....The asset management industry is particularly interested in the area, as they try to improve the performance of their fund managers, automate back-office functions to cut costs and enhance their client outreach by analysing vast amounts of internal and external data....\quantitative managers are “engaged in an arms race” as data analysis techniques that work today will not necessarily be relevant in five years.

“Big data offers a world of possibilities for generating alpha [market beating returns] but traditional techniques are not good enough to analyse the huge volumes of information involved,” .....The data centre is looking for another dozen or so hires for its launch, underlining the ravenous appetite among asset managers to snap up more quantitative analysts adept at trawling through data sets like credit card purchases, satellite imagery and social media for investment signals.
alpha  artificial_intelligence  asset_management  arms_race  automation  alternative_data  BlackRock  back-office  quantitative  Silicon_Valley 
february 2018 by jerryking
The Trouble with Optionality | Opinion | Commencement 2017 | The Harvard Crimson
By MIHIR A. DESAI May 25, 2017

This emphasis on creating optionality can backfire in surprising ways. Instead of enabling young people to take on risks and make choices, acquiring options becomes habitual. You can never create enough option value—and the longer you spend acquiring options, the harder it is to stop. The Yale undergraduate goes to work at McK for two years, then comes to HBS, then graduates and goes to work Goldman Sachs and leaves after several years to work at Blackstone. Optionality abounds!

This individual has merely acquired stamps of approval and has acquired safety net upon safety net. These safety nets don’t end up enabling big risk-taking—individuals just become habitual acquirers of safety nets. The comfort of a high-paying job at a prestigious firm surrounded by smart people is simply too much to give up. When that happens, the dreams that those options were meant to enable slowly recede into the background. For a few, those destinations are in fact their dreams come true—but for every one of those, there are ten entrepreneurs, artists, and restaurateurs that get trapped in those institutions......optionality is a means to an end.
....The shortest distance between two points is reliably a straight line. If your dreams are apparent to you, pursue them. Creating optionality and buying lottery tickets are not way stations on the road to pursuing your dreamy outcomes. They are dangerous diversions that will change you....By emphasizing optionality...students ignore the most important life lesson from finance: the pursuit of alpha. Alpha is the macho finance shorthand for an exemplary life. It is the excess return earned beyond the return required given risks assumed. It is finance nirvana.

But what do we know about alpha? In short, it is very hard to attain in a sustainable way and the only path to alpha is hard work and a disciplined dedication to a core set of beliefs. never even knows if one has attained alpha......Ultimately, finding a pursuit that can sustain that illusion of alpha is all we can ask for in a life’s work.....So, give up on optionality and lottery tickets and go for alpha. Our elite graduates need to understand that they’ve already been winners in the lottery of life—and they certainly don’t need any more safety nets.
optionality  Mihir_Desai  drawbacks  safety_nets  alpha  straight-lines  hard_work  self-discipline 
december 2017 by jerryking
Meet the People’s Quant, an Ex-Marine Who Champions Value Investing - WSJ
By Chris Dieterich
June 2, 2017

Wesley Gray’s value-focused fund of overseas stocks is beating all its rivals over the past year. For him, it’s almost beside the point.

Mr. Gray, chief executive of asset manager Alpha Architect LP outside of Philadelphia, says watching short-term market moves doesn’t pay off. Instead, his firm focuses on the benefits of finding and buying a small number of very cheap stocks, and holding them through thick and thin.

Alpha Architect is an upstart active investment manager that tripled its assets last year, a noteworthy performance at a time when traditional stock pickers are struggling with lackluster performance and investor withdrawals. The firm, with $522 million in assets, is among a growing crop of money managers using academic financial and behavioral research, and algorithms, to identify stock bets likely to beat the market.

So-called quantitative investment strategies pulled from academic research have been around for years, popularized by the likes of Dimensional Fund Advisors and AQR Capital Management. Mr. Gray and Alpha Architect aim to deliver highly potent iterations to smaller investors.

Mr. Gray is a former captain in the U.S. Marine Corps who served a tour in Iraq, and later earned a Ph.D. in finance from the University of Chicago Booth School of Business. He says extreme discipline is a crucial component of his concentrated, algorithmic adaptations of classic value investing, popularized by Benjamin Graham and Warren Buffett.

Last year Mr. Gray put out a report, “Even God Would Get Fired as an Active Investor,” concluding that stock-picking foresight alone wouldn’t equip investors to conquer perhaps their most formidable foe: the fear-driven urge to cut losses.....the market is littered with winning strategies that lose their potency over time, and smart-sounding theories that fail outright when put into practice. Moreover, success in investing often leaves market-beating managers awash in fund inflows that quickly outstrip their capacity to generate ideas.

Mr. Gray responds that the research upon which his strategies are based have proved their resilience for years, and that they can be explained by investor behavior. He admits that he has considered the implications of getting too big, a state that he says isn’t imminent but could force unhappy changes on his firm.
alpha  investors  quants  USMC  PhDs  value_investing/investors  asset_management  algorithms  behavioural_economics  quantitative  idea_generation  finance  active_investing  stock_picking  investment_strategies  beat_the_market 
june 2017 by jerryking
With 125 Ph.D.s in 15 Countries, a Quant ‘Alpha Factory’ Hunts for Investing Edge - WSJ
Updated April 6, 2017

The firm is part of the forefront of a new quantitative renaissance in investing, where the ability to make sense of billions of bits of data in real time is more sought after than old-school financial analysis.

“Brilliance is very equally distributed across the world, but opportunity is not,” said Mr. Tulchinsky, a 50-year-old Belarusian. “We provide the opportunity.”

To do this, WorldQuant developed a model where it employs hundreds of scientists, including 125 Ph.D.s, around the world and hundreds more part-time workers to scour the noise of the economy and markets for hidden patterns. This is the heart of the firm. Mr. Tulchinsky calls it the “Alpha Factory.”....Quantitative hedge funds have been around for decades but they are becoming dominant players in the markets for their ability to parse massive data sets and trade rapidly. Amid huge outflows, traditional hedge funds are bringing aboard chief data scientists and trying to mimic quant techniques to keep up, fund executives say.

Some critics of quants believe their strategies are overhyped and are highly susceptible to finding false patterns in the noise of data. David Leinweber, a data scientist, famously found that the data set with the highest correlation with the S&P 500 over a 10-year period in the 1990s was butter production in Bangladesh.
quantitative  Wall_Street  PhDs  alpha  investors  slight_edge  massive_data_sets  signals  noise  data_scientists  real-time  algorithms  patterns  sense-making  quants  unevenly_distributed  WorldQuant 
april 2017 by jerryking
Hedge fund manager driven by a thirst for knowledge
December 10/11th, 2016 | Financial Times | Lindsay Fortado.

“I am always paranoid I’m not smart enough,” he said. “The biggest challenge in today’s world is that knowledge has increasingly become a commodity. How do you find the kernel of information, that anomaly that enables you to generate alpha?"
hedge_funds  United_Kingdom  HBS  slight_edge  anomalies  philanthropy  alpha  kernels  commoditization_of_information 
december 2016 by jerryking
Managing Risk In the 21st Century
February 7, 2000 | Fortune | By Thomas A. Stewart.

Take risk management, a responsibility of the treasury function. Most risk managers haven't begun to cope with the real threats 21st-century companies face. Like the drunk in the old joke who looks for his lost keys under the streetlamp because the light is better there, risk management is dealing with visible classes of risk while greater, unmanaged dangers accumulate in the dark.

Risk--let's get this straight upfront--is good. The point of risk management isn't to eliminate it; that would eliminate reward. The point is to manage it--that is, to choose where to place bets, where to hedge bets, and where to avoid betting altogether. Though most risk-management tools--insurance, hedging, diversification, etc.--have to do with reducing loss, the goal is to maximize the gains from the risks you take (alpha? McDerment?)

So where should we look for these new risks?

--Your reputation or brand. When a bad batch of carbon dioxide in Coca-Cola sickened some Belgian children last summer, Coke's European operating income fell about $205 million, and Coca-Cola Enterprises, the bottler, incurred $103 million in costs. What about the cost to brand equity? One highly imperfect proxy: Coke's market capitalization fell $34 billion between June 30 and Sept. 30, 1999.

--Your business model. Asset-free, knowledge-intensive competition is to entrenched business models what the Panzer was to the Maginot Line. MP3s changed the music business more fundamentally than anything since radio. E*Trade, 18 years old, forced Merrill Lynch, 180, to change its way of doing business. Yet the new guys' very nimbleness creates its own risks, which traditional risk management can't help. You can protect the hard assets of a brick-and-mortar mall. Click-and-order stores are much more exposed: Cash flow is just about all they've got.

--Your human capital. The obvious human-capital risk is flight--especially in a tight labor market--but it's only part of a larger, subtler problem. When the CEO intones, "People are our most important asset," he's wrong, even if he's sincere. People are your most important investors. Your stock of human capital matters less than your flow of it. Any turbulence--and is there anything but turbulence these days?--can disrupt the flow, damaging your ability to attract human capital or people's desire to collaborate. Says Thomas Davenport, a partner at Towers Perrin: "Uncertainty is a real enemy of human capital. People rebalance their ROI by cutting back the investment."

--Your intellectual property. Many risks to intellectual property--theft, for example--can be dealt with in obvious, if sometimes onerous, ways. Here's the cutting-edge question: How do you manage risk in the process by which new intellectual property is created? How do you cope with the fact that the safer a given R&D project is, the less likely it is to be a big-money breakthrough? How do you balance the virtues of specialization against those of diversification?

--Your network. No company is an island, entire of itself; odds are your business is embedded in a network you do not control. It's not just that AOL might crash and cost you a few days' sales; your whole business may depend on tangible and intangible assets that belong to outsourcing partners, franchisees, sugar daddies, or standard-setters.
There are a couple of patterns here. First, an ever-greater part of business risk comes from sources your company can't own--people, partners, environments. Second, volatility isn't just a currency or stock market risk anymore. Labor markets, technologies, even business models oscillate at higher frequencies--their behavior more and more resembling that of financial markets.

In those patterns are hints of how to manage intellectual risks--which we'll examine next time.
risk-management  21st._century  risks  Thomas_Stewart  reputation  branding  business_models  financial_markets  talent_management  intellectual_property  networks  human_capital  turbulence  uncertainty  volatility  instability  nimbleness  labour_markets  accelerated_lifecycles  intellectual_assets  e-commerce  external_interaction  talent_flows  cash_flows  network_risk  proxies  specialization  diversification  unknowns  brand_equity  asset-light  insurance  hedging  alpha  Michael_McDerment 
june 2012 by jerryking
WSJ: Galleon and the Trouble With Insider Trading
Jan/Feb 2010 | The Corporate Board | Andy Kessler.

Information now travels at the speed of light. The edge to human traders
is mostly gone, arbitraged out by fast computers.
Near-term blips in stocks will always be driven by those with industry
contacts, legal or illegal. The only way to truly beat the market long
term is to use your head, think out long-term trends, figure out where
productivity and therefore wealth is being created in the economy,
and invest alongside it. This might include investing in wireless commerce, gigabit broadband, personalized prescription drugs, oil shale extraction, or electric smart grids that can better allocate power to where it is needed.
— Andy Kessler,
Andy_Kessler  wealth_creation  productivity  productivity_payoffs  trends  JCK  long-term  strategic_thinking  ideas  arbitrage  traders  beat_the_market  insider_trading  Raj_Rajaratnam  power_grid  alpha  commoditization_of_information  broadband  hydraulic_fracturing  personalization  shale_oil  smart_grid 
june 2011 by jerryking
Outsmarting The Market
JANUARY 22, 2007 | Business Week | By Anthony Bianco
alpha  strategy  quants  Wall_Street 
may 2009 by jerryking
Mining for Gold -
Interview with Deutsche Bank Asset Management CIO, Sean Kelly.
Details how the firm sorts through the clutter of information to gain an

THE WALL STREET JOURNAL: How is information technology strategically important for Deutsche Asset Management?

MR. KELLEY: In finance there is a concept called "alpha," which means that you make returns beyond the market as a whole. It's really what asset managers get paid for. For us technology is a sizable factor for creating alpha.

"There's a lot of information but also a lot of noise. You have to figure out algorithms to crawl through [all] this automatically, taking out 95% of the noise and finding signals that indicate the emotions of the market. That's the thing: The information doesn't have to be correct -- it just has to be dominant. A person doesn't have to be right. It just has to be that everyone thinks that way. So if you can figure out ways to get to that information and act on it before the market has a chance to correct itself, it gives you an added edge."
alpha  Deutsche_Bank  data_mining  slight_edge  information_overload  competingonanalytics  CIOs  sorting  noise  signals  informational_advantages 
january 2009 by jerryking

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