@Outlier: It sounds to me that you're desperately grasping at straws.
You're missing the big picture: There are about 4,100 universities in the United States. Whatever methodology you use to decide the "top traders", you will find that there is an overwhelming, over-representation of the top 30 universities among them. This cannot be purely because hiring committees at large hedge funds unfairly prefer to hire people from the top 30 universities, because if graduates from the top 30 universities are not measurably better traders than those from the remaining 4,070 universities, we would rather hire graduates from the lower-ranked universities because we can pay them less.
There are definitely ways to improve on the selection and definition of the top-performing traders, and even better ways to define what it means to be more or less "educated". But you realize that what you said actually lends to my conclusion: Even without any deliberate method of selecting my sample (which would inevitably contain confirmation bias on my part), and going by a random Bloomberg article's perceived selection of top managers, I still arrived at the same group of universities.
I don't see the relevance of highlighting that the NYSE had been violating SEC regulations, which is the NYSE's responsibility alone and has nothing to do at all with frontrunning, and which all the more proves my point that there is no wrongdoing on the part of the trading firms referred in that article.
Underperform in this case also could mean a -20% difference. So why would you take that chance when you could just buy the ETF at the beginning of the year and you don't even have to log in anywhere for a whole year?
Now in this discussion comparing HF managers who has billions AUM to daytraders is rather futile, so maybe small HF managers are a better comparison...
If we ignore the car accident where I killed 4 innocent bystanders my driving record is pretty damn good. What is that % without ignoring the 2008/09 crash?
And that statistics is certainly not representative of the industry standard, but I congratulate your firm on their results...
That wasn't even the topic. But you still haven't explained to me how could they blow up and so badly that they almost took the whole industry down with them (at loeast that was the fear) if they were so smart and educated...
Sure it is. It is a perfect example that even smart/educated people don't learn and they do the same mistakes over and over again. Oh I am sure they said: Hey, we had a 6 sigma event recently, sure we are not due for another one for the next 20-30 years, so no reason to change the strategy...
I mentioned to ignore 2008/09 because that was such an anomaly and mess that our prime brokerage rep didn't remember the exact fatality rate. That said, I'm willing to wager that the retail fatalities in 2008/09 far exceeded the institutional fatalities in 2008/09, and as Outlier had pointed out, institutional accounts are highly correlated with 'college-educated' accounts and beyond. So my conclusion still holds in 2008/09.
For the same reason I'd rather not buy 100 houses in Southeast Florida.
I don't find the comparison too unfair. Having billions in AUM entails different types of handicaps. Your risk of SEC enforcement actions and operational meltdowns increases exponentially with AUM.
That's our clearing firm, not us, but yes, they do a pretty good job of accepting only creditworthy clients, but there's significant self-selection among the larger PBs/clearing firms.
They were very unlucky - one could win two Nobel Prizes and still die of an early age from cancer.
What do you consider the most important traits for trading? People usually think of some combination of capitalization, experience, intelligence, preparation, and luck. Unfortunately, trading outcomes are largely dominated by one of the above.
Actually, I heard Eric talk about this last year and I understand that they made several improvements, all of which I consider very sound. These improvements concern how they ran their strategies, which explains why none of this came to be publicly-known. I can give you specifics in PM if you're interested.
Yes, you also showed prestigious schools in the resume of the chief manager help to attract capital. You made that point with your more or less random sample drawn from the population of large hedge fund managers, with AUM over $1 billion. That was part of your premise, making this the conclusion can only be completely fallacious. I could as well sort in ascending order by 10-month random snapshot return and conclude that the worst managers are highly educated.
The author suggested HFT can front-run due to unfair feed advantages, and backed it up with NYSE's preferential, rule-violating treatment of proprietary feeds. If you think he is going completely off-topic, you may want to add that comment to his site.
The following user says Thank You to Outlier for this post:
You shouldn't say something like that unless you intend to severely discredit yourself here. A quick search shows that the past history of your posts suggest that you have a personal agenda against me, and it doesn't take much effort to put two and two together and conclude that you're finding fault with me for anything but honest reasons. (And in fact, quite on the contrary, I have explicitly spoken up to defend you on this forum before.)
I don't comprehend what you're saying over here.
But I get this part, and believe that your reasoning is faulty. Here's why. There's an asymmetry between the group who generate the best rolling 10 month absolute returns and the "worst managers": The first population is very small, while the second population is very large. And I managed to show that 100% of the top 20 managers all graduated from the top 30 universities.
On the other hand, the worst that a manager can perform is to completely close down, so going by the mantra that 4 to 10% of hedge funds close per year, there are at least 400 to 1,000 managers who form the bottom group alone. You would need to show that the bottom 400 to 1,000 managers all come from within the top 30 universities to prove me wrong using that line of reasoning.
1. It's not an "unfair feed advantage" when everyone has access to the same proprietary feeds if they pay for it and there's plenty of space in Mahwah. That's like calling "first class passengers" out for an "unfair seating advantage"...
2. In this instance, no trading firm was responsible for the mistakes made by NYSE. Clearly, there's a reason why the SEC penalized NYSE and not a group of trading firms for this.
3. I still don't see what's considered frontrunning here. No matter how fast you receive it, a market data feed only broadcasts past events, not future events.
4. If you think that they are practicing anything unfair, I would invite you to share your comments, as I can connect you with their legal team, if you PM me.
is it me or is this discussion totally off the rails. It was never even established "what" a trader is?
I went to an interview here in Chicago at a very highly renowned hedge fund started buy a brilliant Harvard guy while he was still at Harvard. I went to very average state school and focused mostly on football, girls and a good time. So how in the world i made my way to the interview I'll never know for sure. I did have a track record...a lot of respected guys new me and liked me. I had a "professional profile", but nobody asked for it. Name and phone number on a yellow pad, write your number on a name tag and put it on.
Three guys come in pass out three by five index cards and give the following instruction. First question is, if you are hired and you can choose your compensation to be either silver dollars stacked up in a single stack from the street to the top of the sears tower or stacked neatly to fill this conference room, what would you pick?
after about 5 minutes. They say turn in your index cards who wants to be the first to answer the question? Of course I said, I'll go first. The youngest looking guy, definitely the one I wanted to smack the most goes, "I hope there is more in your head than what you put on your index card". To that I respond, "nobody ever said write on the index card".
So at that point I had given two correct answers before I even answered. I said I wanted to be first...which is what they are looking for. I followed directions, which is also what they where looking for. The senior guy gives me back my blank index card and says, "with two words write on the card which way you would like to be paid conceal the answer , then sit back down". So I wrote "this room" on the card folded it in half and sat back down.
The other two guys had all kinds of calculations, estimations, and questions written on their cards. They where given their cards and asked to explain their answer...never asked to write it down or conceal it. I knew that that point they where "out" and I was still in because they where not asked to document and conceal. So these poor bastards...the super highly educated ones... are up at the white board trying to show the approximate "pay" in each scenario and the interviewers smirked and mocked...it was brutal. They where dismissed and before three other interviewees came in the room the guy I wanted to smack asked me how come I did not ask any questions or interject. I replied that I though if someone wanted to hear from me they would ask and that in my situation I'd be better served by listening than talking? He asked me my name and said, "Dan, you have a shot.
The three others from previous groups come in and we are left by ourselves. Nobody knew the conference room mic was on and our hosts where listening to the dialogue. The other four talked about their credentials. I made fun of the guy I wanted to smack. The hosts come back in and say. The four of you can follow directions, you did not write on your cards. One of you might get a chance with the firm. Who wants to go first...of course all of us spoke up. The guy I wanted to smack picked me...he goes Dan before you answer, what is your problem with my shoes. To which I answer...you east coast ivy league fags like those polished up square toes, and 300 dollar ties, I'd rather have work boots or be barefoot. The hosts freakin roared at that. He responds with a high five and goes you are first, before you answer do you have any questions? No, pay me in silver dollar stacks to fill this room. Why he asked. I said...if given a choice between linear and volumetric I'll choose volume every time. He goes sit down lumber jack.
The other guys all asked questions to help verify their thinking. That is not a good thing. The hosts wanted a decision, certainty and then support if they asked for it.
I moved to the next "test" because I followed directions, answered correctly, though on my feet and responded well to pressure.
There are many roles in trading, many types of traders and "educated" is subjective.
On the way out I was waiting for their receptionist, I'd asked her if she wanted to go to the hockey game and have drinks. My hosts saw this and I could tell got another laugh. The guy I wanted to smack asked me in the elevator if I wanted to know how much money the two options would pay me. I said no, the point was to get to the next stage I don't care at all about the fantasy land stuff...but I do have a question. The guy who actually figured out the difference correctly in 5 minutes, does he work here? He goes, two people have done that, one owns the firm, the other guy is an east coast fag with square toed shoes.
The following 3 users say Thank You to wldman for this post:
Hey Wldman, that was a fun story! Since we are at anecdotal evidences, let's bring up yesterday's new season of Survivor. It has 3 groups, Brawns, brains and beauties. You probably see where I am going with this.
So there is this competition where they have to put puzzles together. The brains reached that section first so they even had time advantage. The woman who was doing it is a nuclear engineer. She screwed it up so badly, that they ended up 3rd, even the beauties, who were way far behind beat them....
So they lost the first 2 challenges and both involved puzzles...
I know, I don't care when my dog dies as long as my neighbour's dogs died too...
But it is and not just always for retailer's advantage. Obviously a small account runs into liquidity problems less often than a billion dollar account. But a big HF manager has way more resources under his weaponry. Also they can be more like investors than daytraders, so the comparison is really bad.
Now a smaller HF that trades in and out everyday, the comparison can work...
Outlier already pointed out the problem of that sample. If we are talking about the industry as a whole, what is the survivor rate of an average small sized HF? In a 5 years period it is probably under 10%...
LUCK is a four letter word in trading. And they got unlucky twice....
There is a disadvantage in having too much education, specially when someone is taught of a trading system. A less educated person can just blindly follow the rules and trade it, but the smarter the person, the more they second guess or criticize the system and alter it.
I tried to look up HF survival rates, back in 1998 in one sector 65% died just in that year:
Sure, I can take capitalization out of the equation. A principal trading group does not benefit from capitalization, since it does not take management fees. Above that, the top 10 (by gross dollar revenue in 2013, before someone accuses me of not naming the selection methodology) principal trading groups are only capitalized about as much as the smallest hedge funds ($100-500M).
Yet nearly 90% of the entry-level hires at these 10 principal trading teams come from 5~6 universities. If you focus on the top 3 teams, this number becomes even more skewed (maybe 95% from 3 universities). And the success rate at these firms is practically 100% through '08 until '14. You pretty much stayed at your firm until you retired from the industry. One team hasn't hired a single person in the past 3 years because they had zero turnover.
Again, if you believe education doesn't matter, you'd question why they didn't fire all of their staff and replace them with interns from state universities. I can tell you from experience that hiring PhDs is not cheap.
It's up to you. I've always wished that I had more education, not less.