Quant Investor Cliff Asness Hasn’t Smashed His Screen This Year Yet | Hacker News Reader

Quant Investor Cliff Asness Hasn’t Smashed His Screen This Year Yet

bloomberg.com

48 pointsry4n41322 comments

> I’ll still wake up sweating once a year, worrying that we’ve just gotten lucky forever

You have to appreciate his candor.

Cliff Asness is the Jose Mourinho of quant finance: past it, stuck angrily defending one way of looking at things, the fault’s always elsewhere and rooted in people not looking at it in terms of a particular investment methodology he asserts.

Not taking anything away from the content, I have such trouble reading light text on dark dark (black in this case) backgrounds! After a few lines, I have light/dark rows burned into my eyes. After a page, I give up.

Not to mention all the quotes fading in and out of the page.

history repeats. filled with algorithmic trading systems that never lasts. unless maybe hft and arb and market making.

“I’ll still wake up sweating once a year, worrying that we’ve just gotten lucky forever”

For good reason. It's amazing the amount of intelligence and effort that gets wasted in finance. (Other fields too of course.)

>For good reason. It's amazing the amount of intelligence and effort that gets wasted in finance. (Other fields too of course.)

Whenever I hear someone say this, I never see an explanation for why it's actually a waste. People are usually just jumping on the 'finance is evil' bandwagon. Well, capital markets are vitally important to the global economy, and the presence of investors like AQR are a huge reason why markets are as efficient as they are.

When I was working at a quant hedge fund which was adding very little to actual efficient allocation of capital in the world I came across many an accomplished researcher who wanted switch from academia largely because it was just that much more lucrative. One person for example was coding the creation of better medical lenses at a top university and had been subsidised by state prizes to the tune of hundreds of thousands. Certainly felt like a waste of talent as they switched tack to add the a tiniest fraction of liquidity.

Lots of people found charities or start businesses once they've created a wealth base. If this person makes millions in finance, he/she just might found a lab or create a medical lense startup in the future. It might eventually be more effective than begging for government grants.

Perhaps, though that starts a long line of big ifs, and the wealth to solve a great deal of the world's problems already exists - a vast chunk of it just spins in various shadowy games.

I tend to think there are better ways for bettering society than philanthropy though, and these vary wildly in effectiveness. In this case the millionaires in this fund focused primarily on some cancer charities. I understand that these tend to resonate emotionally since everyone is at risk, but really they are quite suboptimal ways of channeling funding relative to the needs of the world or maximising ethical return on investment.

Efficiency and liquidity are not the same thing.

Liquidity is important, but efficiency is more important. When we identify fraudulent companies, for example. The sooner the better, right?

Or, when we identify the next Google, and give them the resources (money) they need to build a new world-changing product. The sooner the better, right?

A hedge fund manager told me the whole investment industry is a net cost of 1-2% of global GDP per annum. I don't specifically what study that number came from, but if true its likely one of the main reasoms many see it as a waste.

If you computed a weighted average of all hedge fund returns, you would get a global contribution to GDP. Since hedge funds often don't publish their returns, and it's well known that there's huge amounts of survivorship bias in the data, it would be very difficult to measure accurately. My feeling though is that the contribution would be close to zero, as most of the strategies they pursue are arbitrage based and are zero sum, not wealth creating (with some known exceptions, such as venture capital etc).

Arbitrage is another way of saying eliminating mispricings. Mispricings or traded assets causes a misallocation of societal resources in ways which are negative to economic growth. You need to think second order here.

Pricing resources/companies/commodities/etc has value, it makes the economy more efficient allocating resources in the right place and motivating people to do things which are needed more.

Finance helps accomplish this but with overhead. Finance tends to have power over itself and there is little motivation to minimize itself because there isn't a third party checking its power.

So "finance" is a tax on everything everybody does. It has made itself complex enough that few people not profiting from it understand it, and it does a good job convincing the world it is necessary.

Your experience is exactly the reason why it exists to the extent it does today -- nobody can explain to a lay person why finance is a necessary evil nor what is wrong with it.

Bottom line: in making markets more efficient, the financial industry makes the economy as a whole a lot less efficient by siphoning off a huge chunk to feed itself.

Propose a viable realistic alternative.

Educate everybody better so they understand complex topics a little more.

Not that that is viable or realistic.

Until we have politicians and a voting population discussing actual issues instead of whatever is happening now, there are no realistic viable alternatives. (and it's not hard to believe that many powerful, influential, intelligent people are intentionally pushing politics to be foolish so that nobody has any interest in improving real issues)

Investment professionals charge a fee (the tax you mention) because, in theory, they are at least that much better than the layperson investing. This hasn't always been true, and many active managers have been shown to be no better at generating returns than the market.

There are other objectives for investors than just total return, like risk management, that justify fees in many cases.

> Bottom line: in making markets more efficient, the financial industry makes the economy as a whole a lot less efficient by siphoning off a huge chunk to feed itself.

That's a huge leap that absolutely requires some evidence to back up. This is the typical argument, but it's not convincing without any data, and just plays to the emotional "finance is evil" crowd.

Google employs 70000 people, when in fact they could do what they do with just 700. (If they bothered to actually hire the top 1% of developers.)

Operating with 1% of peak efficiency seems insane, until you understand that Google doesn't hire people to make products, they hire people to increase their market cap.

This is a delusional system that is opposite of 'market efficiency'.

Eventually the system will collapse in a horrific crash and we'll start over with something that doesn't violate common sense or laws of physics. For now all you can do is grin and take it.

That comment is hard to understand, please explain, it seems irrational. Why would Google hiring 69,300 useless engineers increase their market cap?

This doesn’t make any sense. Imagine you have the 7,000 best employees and your ops are smooth. You are told that #7,001 will net improve the business. Are you delusional to hire that person? Or do you think that a profitable 7001th person does not exist?

How much liquidity is optimal? After a point, it increases turbulence more than efficiency. There's always a trade-off.

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