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Personal investments of a quant

Joined
8/6/08
Messages
19
Points
11
I was thinking today that a lot of you guys spend your days figuring out new or creative ways to make your firms more money through its investments. Then I got to thinking that you guys must do really well with your own personal investments. So my question is: do you guys use complex trading strategies for your personal investments or do you just use mutual funds/401(k)/etc.. ?

I am interested to see what the difference in investments is between your average Joe (that actually invests his money) and a quantitative analyst.

Jeff
 
sometimes it's hard to implement your own quant ideas in personal investment either because you don't have the capital, you don't have the time or rules in the work place. To give you an example of the latter, when I worked at Bankers Trust, not only you had to clear all your trading activity with compliance but you also had to hold any position for at least 30 days.
 
So then what do you invest in? I am not looking for specifics but just general information like do you invest in stocks of your choice, mutual funds, or do you bury all your cash under the garage.

Jeff
 
Thanks for the link. I read through the posts and it seems that most people park their money in a savings account in an online bank. I find that really hard to believe. I thought surely a majority of you would at least be investing in mutual funds.

I am by no means a financial wiz like you guys but I don't understand why you wouldn't at the very least put a fair amount of your savings in a mutual fund. I find it hard to believe all you financial gurus are happy with 4-5% a year.

I don't mean to sounds argumentative or offensive I am just very curious.

Jeff
 
When it comes to your own money, generally the conservative approach is most appealing. A bank is risk free up to 100k. A mutual fund may not be.
 
I read that link that Andy posted and it sort of begs the question...if a well-paid financial engineer/quantitative analyst/quant doesn't trust their own personal models, should anyone else, and if so, why?

I believe one WW2 General went on a bombing mission with his soldiers and said "I'm not going to send parents' children places I wouldn't go myself."

Now while I realize that small investors would be subject to fixed transaction costs that are so small that they might as well not be modeled for large-scale institutions, do these differences that are insignificant to large-scale trades completely invalidate the quant models at the personal levels?

I would like some more insight into this.
 
I am by no means a financial wiz like you guys but I don't understand why you wouldn't at the very least put a fair amount of your savings in a mutual fund. I find it hard to believe all you financial gurus are happy with 4-5% a year.

If people here were financial wizards, they'd be working for themselves as embryo Warren Buffetts. Not slaving away for a paltry $120,000 a year. And a fair amount of what quants learn is hogwash anyway -- the models are untested or designed to befuddle the ignorant. Just because lots of partial derivatives and correlation coefficients are used doesn't mean they work empirically. I suggest you read the following story for a better understanding of what goes on in quant finance.
 
Lesson learned:

"Even when the experts all agree, they may well be wrong." - Bertrand Russell

And therein lies the opportunity!

Just because lots of partial derivatives and correlation coefficients are used doesn't mean they work empirically. I suggest you read the following story for a better understanding of what goes on in quant finance.
 
Before you invest in mutual funds, due diligence may be in order, as your yield may be less than what you get in a bank account. Here is one such article from the library of the School of Hard Knocks, there are others that you can find with any common search tool.

Wall Street's ship comes in while customers mostly founder

Thanks for the link. I read through the posts and it seems that most people park their money in a savings account in an online bank. I find that really hard to believe. I thought surely a majority of you would at least be investing in mutual funds.
Jeff
 
I'm not trying to get this MFE because I believe it will make me a better trader or better reader of the markets. Honestly, I don't think it will make a difference, or make it even worse. I'm gonna rely on math equation to go ahead and model people's fear and greed which relates to their trading decisions? I don't think so. But I guess if Russell Crowe playing John Nash thinks he can come up with a formula for how pigeons act the way they do, then I guess people can think the same about markets. But really, I'm just getting it because I want to learn something that 98% of the people out there do not know. I better get it fast, because soon that 98% will become 95% and lesser and lesser very fast.
 
I'm not trying to get this MFE because I believe it will make me a better trader or better reader of the markets. Honestly, I don't think it will make a difference, or make it even worse....But really, I'm just getting it because I want to learn something that 98% of the people out there do not know. I better get it fast, because soon that 98% will become 95% and lesser and lesser very fast.

The logic isn't crystal clear. 99.99% don't know the proof of the Prime Number Theorem. Or Lagrangian dynamics. Or sheaf cohomology. So why math finance? To get a job in the financial industry can be the only conclusion. Even though you realise it may not make you a better trader.
 
Before you invest in mutual funds, due diligence may be in order, as your yield may be less than what you get in a bank account. Here is one such article from the library of the School of Hard Knocks, there are others that you can find with any common search tool.

Wall Street's ship comes in while customers mostly founder

I am a firm believer that if you do your research you can find several funds that do better than 5% in the long run. My college fund is in a mutual fund with Vanguard and over my 4 years of college the net value has gone down about 7k with tuition expenses were taken out. My parents and plenty of family friends have done very well with mutual funds.

We are by no means billionaire yacht owners but I don't think that was ever the plan when they started investing.

Sure they do poorly some years but there are other years where they do extremely well.

I am not trying to say mutual funds are the key to building wealth. I just have a hard time believing that you guys figure out clever ways of making money in various financial markets but park your own money in a savings account (not that there is anything wrong with that).

Jeff
 
The logic isn't crystal clear. 99.99% don't know the proof of the Prime Number Theorem. Or Lagrangian dynamics. Or sheaf cohomology. So why math finance? To get a job in the financial industry can be the only conclusion. Even though you realise it may not make you a better trader.

Yes, might as well try to learn something that even most in the financial field do not know as well and divert the focus in that area since it does pay better than most.
 
I don't disagree. One may have made and invested millions in launching tech companies or traded millions trying to break every rule in the rulebook of traders and still come out better than even as some on this forum have perhaps done. It does not necessarily mean that anyone or everyone can do it anytime and still expect to get the same results. Recent events of last decade, such as dot com boom and bust, real estate boom and bust, hedge fund boom and bust, prove the point among others. A key reason why the world of quant (aka emperor having no clothes as noted by bigbadwolf) may interest one is because this world perhaps presents significant opportunities for the devil's advocate. To play the devil's advocate, however, you need to not only know what quants know but more importantly what they don't know.

Or to paraphrase one of the most well known quants who recently hung his spurs in the game: "Anytime I take a street smart kid with a strong Brooklyn accent and train him or her in quant methods, I develop a wonderful quant trader who knows how to squeeze the sitting ducks. When you take extremely quantitative trainees, particularly from the physical sciences, and try to make them arbitrage traders, they freak out and become pure gamblers. They can't see the edge and become the sitting ducks."

I am not trying to say mutual funds are the key to building wealth. I just have a hard time believing that you guys figure out clever ways of making money in various financial markets but park your own money in a savings account (not that there is anything wrong with that).

Jeff
 
I guess that means he says to go with your gut, and not to rationalize away gut reactions with models.

But what does that say about quant trading?

The only way to truly hedge yourself against catastrophic events is to have no exposure--meaning you make no money, which defeats the purpose.

We don't need some overpaid financier turned philosopher to state the obvious. In fact, he founded a hedge fund off of his philosophies which tanked, but Renaissance Tech and Citadel seem to be smashing face.

Doesn't make NNT sound too bright, does it?
 
The only way to truly hedge yourself against catastrophic events is to have no exposure--meaning you make no money, which defeats the purpose.

That is not true. You can position yourself to take advantage of unlikely catastrophic scenarios. That would be very cheap, since by definition, they are unlikely to happen and the market would value it very cheap. If they never happen, you lose a some capital. If they do happen, and you are lucky enough to have positioned yourself for them, you are rich.
 
Most of strategies/models apply to large pools of money.
With a few hundred K, the most "complex" thing you can do is to build a plain vanilla options portfolio. You can also hedge it statically and sporadically.

From my point of view, I think everyone should look for their personal advantage. It can be an experience with one specific market state or real-estate or small business etc.
Also since the amount of money is not large, I don't believe in diversification. You need to stick to 1, maximum 2 things that you know, understand and enjoy.
 
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