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 $100 Billion in the Hands of a Computer (ZT) |
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PHM
头衔: 海归中校
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加入时间: 2004/04/04
文章: 326
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作者：PHM 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
From yesterday's NYT
$100 Billion in the Hands of a Computer
By JOSEPH NOCERA
PEOPLE ask me all the time: What's your secret?" James Simons said.
We were sitting in an office in Manhattan that Mr. Simons uses when he's not
at the Long Island offices of Renaissance Technologies, the money management
firm he founded in 1982. He was wearing an elegant shirt and tie, and
loafers with no socks. He took a drag from a cigarette, the second of three
he would smoke in the course of a long interview.
I had indeed come to ask him what his secret was. In the hedge fund world,
that's what everybody wants to know.
Mr. Simons, 67, who rarely talks to journalists, is hardly a household name
like Warren E. Buffett. But Mr. Simons, who got into the hedge fund business
after abandoning a stellar career in mathematics, has a track record that is
jaw-ｄｒｏｐping. This summer, word leaked out that he was starting a new fund -
people took to calling it the "$100 billion fund" because its marketing
materials say that it could conceivably grow to that enormous size. Not
surprisingly, that has caused Wall Street types to be even more curious
about him.
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. In quant funds, trading activity
is generated by complex computer models rather than human judgment. Most
quants are secretive about the algorithms that drive their models； after
all, that's their investing edge. But of the handful of big-time "black box"
investors, as they're often called, Mr. Simons's box may well be the
blackest.
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."
He also told me that Medallion sticks with highly liquid securities that
trade in public markets around the world. Why? "Because there is a lot of
data on such instruments, and we're very statistically oriented," he said.
He stays away from exotic derivatives.
Not even Mr. Simons's investors know much more than I've just described. "We
trust Jim and we think he's smart," said one longtime Medallion investor.
"So we stopped caring what the computer was doing." When this investor began
describing Mr. Simons's investing approach, he admitted he was guessing.
Mr. Simons shrugged when I suggested to him that his firm's lack of
"transparency," as they say in the business, was bound to make people
nervous. Humans fail in the market all the time, but somehow we are willing
to keep giving our money to human beings to manage because we understand
investing based on human judgment. Or at least we think we do. But black box
investing feels different. It feels scary somehow, precisely because it is
not something most of us can understand.
"How any great investor does it isn't in the least obvious," Mr. Simons
responded. "How we do it isn't any more mysterious than how a great
fundamental investor does it. In some ways it is less mysterious because
what we do can be programmed." Then he stopped, took another drag from his
cigarette, and let out a small chuckle. "Well," he conceded, "it's less
mysterious to us."
Mr. Simons wasn't always a quant. A former crypt analyst - a code breaker,
that is - he did important work in mathematics that helped lay the
foundation for string theory. When he began managing money in the 1970's, he
did it the same way most investors did: he used his own judgment. "At
first," he said, "I didn't think about investing in a scientific fashion.
But I was trading currencies, and it gradually occurred to me that there
might be some way to create models that would allow you to predict currency
movements."
Although Mr. Simons and a partner made an absolute killing in the currency
markets the old-fashioned way - they made huge bets that turned out to be
right - he began surrounding himself with scientists who developed models
for all sorts of tradeable securities. "By the end of the 1980's," he said,
"I was a model man, and didn't want to do fundamental analysis."
One advantage, he said, is that "models can lower your risk." Another,
though, is that "it reduces the daily aggravation." With old-fashioned stock
picking, he said: "One day you feel like a hero. The next day you feel like
a goat. Either way, most of the time it's just luck."
Indeed, trading the way he does, making thousands of small trades aimed at
capturing small price movements, doesn't generate the kind of "10 bagger"
that investors love. But when done well, quant investing is less likely to
have the kind of disaster that is always the danger when one bets big on a
stock.
To those who point to Long-Term Capital Management as an example of the
dangers of black box investing, Mr. Simons's defenders point out that his
fund has far less leverage than Long-Term Capital, and that in any case,
while Long-Term Capital had several Nobel laureates on board, human bets
were what caused it to go awry.
Clifford Asness, another well-known quant hedge fund manager, said that
while he knew no more about Mr. Simons's methods than anyone else, "It's
hard to believe that there isn't a measure of safety in Jim's approach.
"Presumably, he's got a highly diversified portfolio, high turnover, and
he's capturing small inefficiencies. It's hard to lose a ton of money doing
that. It is always possible that someday his models might stop working. But
that's different from 'blowing up.' "
"You know," Mr. Asness added, "human beings have a black box, too. It's
called the brain."
As for the new "$100 billion fund," Mr. Simons was even more constrained
than usual, thanks to regulatory restrictions that limit what he can say
publicly while the fund is raising money. People are buzzing about it
nonetheless, for it seems to be a major departure from Medallion.
Medallion's investors were almost all wealthy individuals； the new fund,
called the Renaissance Institutional Equities Fund, has a $20 million
minimum investment and is aimed at institutions. It has a much lower fee
structure. It will invest in - or sell short - only publicly traded
equities. Instead of making rapid-fire trades, it will be much closer to a
buy-and-hold portfolio. And so on.
In one critical way, though, it is similar to Medallion. As the marketing
document, which I obtained from a person unconnected to Mr. Simons, put it:
"The company's risk control, variance and covariance estimation, execution
techniques, slippage models, and predictive signals are all derived from
those employed by the managing member in trading the Medallion Funds."
In other words, Mr. Simons believes that computer models similar to those
that have worked for Medallion will also work for a fund that can hold $100
billion worth of stocks over long periods of time. It is absolutely
audacious.
What interested me most of all was: why? At an age when most men are
contemplating retirement, with more money than he can count, why was Mr.
Simons still at it? "I enjoy the challenge," he replied.
He then began describing a demonstration he saw recently of a new nuclear
accelerator at the Brookhaven National Laboratory, where he is on the board.
Two atoms hurtled toward each other, colliding with great force. "A huge
number of particles are thrown out," he said, "and the job is to analyze
everything that results from the collision."
"Watching the spray of particles on the screen made me think of the stock
market," he continued. Every trade, even of a hundred shares of a company,
affects every other trade. And every day there are thousands upon thousands
of such trades, all of them affecting the rest of the market. His work, as
he sees it, is to analyze that incredibly complex mosaic and try to figure
out how it all fits together.
"The subject may not be the most important in the world," he concluded, "but
the dynamics of the market are really interesting. It's a serious question."
I suddenly understood the motivation behind Mr. Simons's new fund. He's
doing it because he wants to see if it can be done. Once a scientist, always
a scientist.
作者：PHM 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 $100 Billion in the Hands of a Computer (ZT) -- PHM - (9677 Byte) 2005-11-21 周一, 03:02 (680 reads)
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