The Quants

Once in a while, a book about trading written for the general public contains some useful nuggets even for professionals.  Fortune's Formula was one. It introduced me to the world of Kelly's formula, Universal Portfolios, and the maximization of compounded growth rate. The Quants, by WSJ reporter Scott Patterson, is another. (Hat tip to my partner Steve for telling me about it.)

What is the most important take-away in The Quants? No, it is not that you should learn to become a master poker player or chess player before hoping to make it big, though you would think that given Patterson's exhaustive coverage of poker games played by the top quants. Among my own professional acquaintances, trader-poker-players are still a minority.

The most important take-away is what ex-employees said about Renaissance Technologies: "there is no secret formula for the fund's success, no magic code discovered decades ago by geniuses .... Rather, Madallion [Fund]'s team of ninety or so Ph.D.'s are constantly working to improve the fund's systems, ..."

In other words, though you may not have 90 Ph.D.'s  at your disposal, you can still work on continuously improving/refining your strategies, improving the engineering of your trading environment, and increasing the diversity of your strategies. And though you may still not archive 60-70% annualized returns every year, you will nevertheless enjoy stable returns year after year.

By the way, it is good to see my ex-colleagues Lalit Bahl, Vincent and Stephen Della Pietra mentioned in the book, all of whom left IBM to join Renaissance many years ago, and who are extraordinarily nice and friendly guys, quite in contrast to the norm on Wall Street.