Did General Chen short this at 180?
money.cnn.com
Could a computer be the next Buffett?
Bad news for your fund manager: Computers are starting to look like pretty savvy investors.
...Increasingly, Sauter isn't alone in this belief. Charles Schwab (Research) now runs nine quantitative, or "quant," funds in which computers make buy and sell decisions based on their constant crunching of hundreds of thousands of numbers. Of the five Schwab funds that have three-year records, four have whipped at least 75 percent of their peers.
socialize.morningstar.com
Here's a selected passage:
Here are Mr. Simons's numbers: from 1990 to 2004, Renaissance's primary hedge fund, called Medallion, has delivered annualized returns of 33.21 percent. (The Standard & Poor's 500-stock index has returned, on average, 10.98 percent during those same years.) Since the end of 2002, the fund, which has $5 billion under management, has disbursed $4.9 billion to its investors -- with another $1.5 billion to be delivered at the end of this year.
And these returns are after Medallion's 5 percent management fee and 44 percent share of the profits -- surely the highest hedge fund fees in the land. Medallion's returns, and its fees, have helped make Mr. Simons a very wealthy man, with a net worth that Forbes estimates at $2.7 billion.
When I showed Mr. Simons's returns to a hedge fund friend, he looked startled. ''Nobody has numbers like those,'' he said. But here's the real eye-opener: no one outside the firm's 200 or so employees has a clue how he does it.
Medallion, you see, is a quantitative fund.
Well, this is pretty interesting, too. . .
HERE'S what we do know. Medallion's portfolio contains literally thousands of stocks and other financial instruments that it trades in rapid-fire fashion. The firm's scientists are constantly searching for repeatable patterns, and other signals, in the enormous amounts of data they compile. The computer models they devise tell them when to make trades based on those signals.
As Mr. Simons put it -- and this is about as specific as he would get -- ''Certain price patterns are nonrandom and will lead to a predictive effect.''
Of course once computers find such a repeatable pattern, they essentially destroy it by trading it . . . while other computers, stock pickers, and screeners compete with them to do the same. Quickly the "repeatable pattern" is not only gone, but sometimes replaced by a new pattern that is 180 degrees out of phase.
The real question is whether you see stock picking as a beatable "game" - with a correct set of moves and rules that can lead to victory. It is virtually the same as asking "Do you believe in Technical Analysis as a useful investing tool?" Is there something inherent in the data that will predict the future? A head and shoulders pattern? Candle-stick charting? Volume/Price analysis? Or do day to day management decisions, business climate, productivity, creativity, product development, political climate, unexpected disasters and luck make the difference? Future cash flow and earnings from a super-computer? I doubt it . . .
It seems to me that the existence of computers and high-speed information transfer is exactly what is making the markets more efficient. Stocks trading on different markets now trade in lock-step BECAUSE of computing and the global linking of info.
One last point . . . Medallion takes 5% expense ratio plus 44% of the profits??? Good luck on any long-term gains. That is a head-wind that I would not want to be up against. Just my opinion . . .
-P |
