YouSaid · the spoken record

Eric Sorensen

lines on the record: 73
first: 2019-07-23
most recent: 2019-07-23
sittings or episodes: 1
sources: podcast

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“That's a big term. That's a religious thing. Love me unconditionally, beyond any doubts. I'm good to go. I'm now free from guilt.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“No, and actually, I'm probably not in touch as much as if you ask that question to the CIOs I've mentioned earlier, I think they would have answers. Yeah, yeah.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Probably, I don't even know who they are. I'm not necessarily sure it's people that are actually doing it for money. I think there are people that are doing it in other forums, maybe research groups. We have a hard time competing now. I mean, finding talent because they go to Google or they can go to Amazon. There are other, and in Boston or other towns like Montreal is a huge work of AI. There's machine learning. And what used to be an outlet for that talent pool has now got more possibilities. I could name some people, but they're my competitors and I don't want to.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“So I would say understanding that there's data, that there are analytics, which you're learning in school a lot of it, and the data may not be good data you're using because it's commercially available and universities can afford it, and there is, do you really know what a trader does, what makes prices move day to day? You understand dealers, you understand buy side clients, you understand stickiness, you understand whatever cycles. So you're not going to learn that overnight, but just be aware there are those other components. So get exposure. Again, I mentioned my colleague George Massali, who tells his story. He was an undergrad and then he went to MIT ultimately, but he had to decide whether there was going to be a fundamental analyst or a quant. I think he's a good quant because he spent a lot of time thinking about what fundamentalists do. So you think about domain knowledge and also data.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Again, my same team and including that gentleman you just referred to, we look at machine learning in a certain way, and it can be applied all over. A different engineering problem or driverless cars problem. And there are, I don't know if these unique to my colleagues, but it's a nice way to think about it. There's a Venn diagram with three circles. There's an intersection called machine learning. One of those circles is domain knowledge of the domain. And another circle under the analytics, the algorithms, the computational expertise or acumen, and there's data. So if someone wants to come into this business or any business and want to go in, they got to understand all of those three are important. So I have an acquaintance who runs a big money management firm and asked me, you know, you've got really good quants. We go to the universities and hire people with advanced degrees in statistics. They don't all work out. Well, they got that one circle. They know that techniques. Maybe they don't understand the industry, really. And certainly they don't know the quality of the data yet. They have to learn that.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's a little bit of simplistic, but I think that that stuff is, it's all over. It's not done correctly every place. There are lots of concentrations of risk in the way it's been done historically. You may end up with a whole bunch of utility stocks for low ball, but there are better ways to construct the portfolio. And I think there's some room for growth there too.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think about what's happened in smart beta. It's a metaphor. If you look today, let's say you're going to field an Olympic team today. We're well beyond just the pentathlon as a single activity. In fact, people look at that and say that's interesting, but they really focus in on the specialization, the sprinters as a group, the hammer throwers as a group, the high hurdlers. And so what a entity is going to put together an Olympic team today will bring clumps of specialists that have one thing they do well. You don't make the 165-pound sprinter throw a javelin or the 300-pound shotput player sprint. So what's smart beta? Smart beta is sort of a decoupling of Alpha and Beta, but it's actually getting the portfolio exposure to these factors, to these events, with clusters of, if you will, specialists. So we have a defensive equity strategy. We can run a low wall one. We can run a dividend yield one, which we do. We can run a multi-factor one. And this portfolio construction technique, which trades off diversification benefits of the stocks and the stocks.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Place to be as long as you can survive. So concentrated portfolios, and one of the keys is, man, can I hold cash sometime? Yeah, you can do that. So in 1971, 727, I got one back to graduate school. I started looking at this. Manager was alternative. The history of this company, probably with your name on it, was alternative, wasn't viewed as, okay, here's a mandate. Look like the S&P 500 or look like the Nifty 50. We're kind of moving back to that, but with better tools. I hope we're moving back to that. Well, the gold is wealth creation for the ultimate owner or sharp ratio periodically, but it's ultimate wealth creation. So does quant equity or does fundamental survive? I think they both survive.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think concentrated portfolios, forget this alpha beta separation, that's going away. Smart beta as we call it, you can't have a monolithic capweighted MSCI that everybody has to track to. Is it going to change? It is changing. And I'll come back to another metaphor about the Olympics of how I think that's working this way out. Modern Olympics as opposed to the pentathlon. And therefore, those that actually can pick stocks and have concentrated portfolios, I think there's a whole world for them. There's a key though. You can't hamstring them. You can't make them have a beta one. In fact, you ought to say, I like your team. I like your processes. And by the way, that's a large part of how you get hired, not just your track records. I believe you believe what you're doing. I like your passion. I like your fees, but that's not the main thing. We think this will work. And by the way, if it doesn't, we'll fire you. By the way, we as money managers exist so we can be terminated. It really is. It really is an agent principle problem. Social work is not a bad problem.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“We go to see clients. There's this group I'm thinking of, they're usually more sophisticated clients, they like us, they like our competitors, they have multiple of us. First question, head guy in the room, person in the room. What are you doing that's different? Be good, but be different.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's the traditional quantity. We want to rank and we get in there and do that. So that whole world, it's about data and it's about the tools to actually forecast. We mentioned them. The machine learning or the AI type things as the new ways, which are basically extensions of linear regression or these data sets you and I have talked a little bit about. And you just have to hope and think that you can actually be ahead of the field in that.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Often compare it to the ancient Olympics, it's 1776 BC. The Greeks. They had a stadium, and they started a contest. Who could run around this 200 meter stadium the fastest? They had a contest. And then over time, over the next 50 years, they proliferated the event, not with number of people participating. Yeah, people could participate, but with how many events that person had to participate in became the pentathlon. There was running, javelin throwing, discus, jumping, and wrestling. Now think about all those things. Think about a stock, five characteristics. Is it going to be good at the top on every one? No, the winner of the pentathlon on a weighted average basis. One, you wait these events. I think Jim Thorpe in 1912, they still have the pentathlon in the 1912 Olympics was still viewed by many as the greatest athlete of all time. He could do them all. He could have won single.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“The multi-asset side, whether it's broad markets, equity markets, or sectors, I think there's a lot of room for better time series work. Again, I mentioned Mesrich, a lot of people are focused in on cross-sectional comparisons and don't have a real passion for over long cycles, can we forecast better? Or can we be on the correct side of it? That's a whole area that I think's got a future in equities per se, you look at what's happened. We have quant equity. It's under some pressure. It's like fundamental. Basically, there's not a lot of flow or the flow's slowed down. It'll pick up again. It's really got to, for the ranking system, I like to think of the ranking system of ranking stocks.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Right. You can buy that data. It's very expensive. Or you can go down the street here and look at a person who's basically got a washing windows or a person that's actually in the plumbing business or fixture business. And there's 40 tenants in that building and that guy's got access or that person has access to information on who the tenants are so they know who to go after. The trade organizations have some of this. It's free. So that's not always the case.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's not economically worthwhile. We do buy some. Or are we going to try an alternative source? Are we just not going to do it? And by the way, again, this team, we have a medical doctor on there. We have other people from different parts, historical professional. The MD didn't practice medicine. He's been with us 10 years. He built our biotech and pharma model. He loves this stuff. He just didn't want to be a doctor. But he kind of know he's in the field. We have a way of actually sorting through what will work and what won't work. And there are what will work is if a vendor says this is going to cost you $200,000 a year and you can find, let's say you want to know there's a building right over here. You want to know the occupants. You think you have some big data or some smart data that can figure out the quality, the staying power of the occupants, so the real estate holding, the REIT, whoever owns it, you could rank, whether that's safe or risky or not.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, a factor may last four or five years and a half-life may be two years and you have to monitor how well it's working. We have a model that our equity team use, a model in quotes. And an actual expected value model or a business model of whether we're going to go after a particular data set and then use it in production, big data, smart data, whatever. Part of the answer is how much does it cost? The other part of the answer is we look at the existing model. Will it add value at the margin? So you can get a set of data that's, if you will, a version of it, a pilot version, you can test it with your process and see. You can get a pretty good answer. Will it add three basis points or four do we think we have to guess a little bit on the bound of that? And then turn around and say, what's going to cost us? Some of this big data is very expensive because the hedge fund world is smart people. They get in there in a hurry and it bids the price up. So then we have to make a choice. Are we going to buy it when it comes to it?”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. And I like to describe it this way. It probably wasn't quite literally. But about a week later, a huge box of paper arrived at our office. All this stuff typed up, written down, or printed out. We can't use that. The labor going through, can you get it to us electronically? They couldn't, but they ultimately were able to. So going into 2007 and 2008, I believe our financials performance as part of our long-only stock selector product actually held up a lot better than most of them. Now, that same data today has been armed away because I'm sure that one or two clever providers of what's called big data found out about it, went into the FDI saying, you're giving that to Panagora? We'll buy it. Okay”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Let's value the asset portfolio. Let's figure out what's the quality of the assets, all of the loans in the portfolio. Categorically, there are all kinds of loans. And so they figured because we know the world, well, there's a government entity that actually cares about that, the federal deposit insurance corporation, because they guarantee to some degree the solvency on behalf of the depositors. Well, they know a lot about the quality of those loans. They can gather data. And turns out they had at that time, I'm sure they have even better data now, but they had data on the delinquency rates of a loan portfolio of commercial banks that were FDIC insured, meaning what percent of the loans one month over to two months, three months over. So you can actually, if you knew that, if you have a haircut to the value of the assets and therefore value the bank. By the way, you can also do it with insurance companies. You can also do real estate and reitz. We do it all over now. But here's a great evolution of a factor. So George and Group, they call the FDIC, can we have that data that found out about it?”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I use an old example too, financials. They really had a hard time Quants did with their financial sex of their portfolio in 2006, 7,800 problem. And my colleague George Massali, who's the other CIO, counterpart to Eddie Chan, who I mentioned earlier, is really a pioneer in what's today called big data. I mean, really, it's a real fundamentally oriented team, but they identify, and they were trying to figure out ways to really sort between good and bad banks. I mean, financials, corporate commercial banks. And one of the data sources they thought about.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Isn't in one clump, and Euclidean space is sitting out there somewhere, so you map it into these four or five different risk, if you will, partitions, and then use a weighting scheme which is drawing from where the stock actually resides. That was pretty good. And even today, that's still better than one size fits all. But other people have actually done that. I've copied this to some degree. So that's a one-size-fits-all kind of away from that. The other strategy gets very deep into the mechanics within a sector or when a set of common securities, what are the fundamental drivers?”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“We have two approaches that we've used, and actually there are two different portfolio offerings. One of them does, I never did like it, but we always talked about it, is every stock has its own model. See, there's so much idiosyncratic risk in a single stock. I don't think you can model it with valuation, but in terms of actually weighting factors, it's hard. But we built this process back, my colleagues, and I was part of it 20 years ago, and we have clients in this strategy today. We call dynamic equity, which actually rather than the one size fits all, the weightings on a particular stock in this set of factors, whatever they are, value, momentum, growth with different inputs over time, quality. The weights are different for different securities. No two securities with exactly the same weight, but the way the weights are determined by commonality within a larger group of securities. So take all the gross stocks, the high growers, or take all the small stocks or all the high beta stocks and model with your inputs, what is the optimal weighting scheme for each of those clumps? Well, no.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“No, I know. And so we do that in long only space. We also do it in, if you will, hedged or if you will beta or market neutral space. Same concept. Capturing premium, but offsetting it by shorting something else.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“But the formal way of doing that is to risk weight the assets. And so we have a product in that area. I think that has real staying power. What happens is sometimes the proposition is that they all have similar sharp ratios over time, but they go through different cycles. Really, the correlations between the asset classes, if they're lower negative, it's a winning strategy. You can accumulate more wealth for your client with a risk-weighted approach over a reasonable horizon than, say, a traditional 60-40. But it doesn't always work because work meaning the following. It's underperforming traditional. What do you mean underperforming? Well, last quarter, it was 3% behind the, say, 60-40, which is 90%, 95% equity risk. Why? Because equities went straight up. So I tell this team, I said, you're doing your job when it quote-unquote underperforms because over a three-year period, it'll deliver a better answer.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Weather, man. We were always talking about the all weather aircraft that was coming. Maybe it was the F-15 could fly in any condition. By the way, you don't fly in thunderstorms. So there's no such thing as an all-weather airplane or hailstorms. You just don't do it.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“It has been on the equity side, no question. With respect to risk premium, we probably think of it more as asset classes. It could be currencies, it could be bond markets around various maturity structures and bond markets, certainly equity markets. And risk premium means if I'm going to basically expose myself to a volatile asset, I should get a return. And you can measure the sharp ratio of that return. And I said earlier, sometimes they mean revert. But Eddie Chan, who actually was the first one to actually write down in a paper in 2006, is one of our CIOs and runs a great product area. Risk parity. And Bridgewater had a product at the time, a phenomenal name because that was a pilot.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“And addresses history. And I think so we were doing this volatility modeling. I don't know if you make money on that. I don't know. Markets are pretty efficient, applied vaults compared with statistically predicted bombs.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't believe we make any money on that, but I do believe this we learned a lot my colleagues did, and maybe ultimately that particular application will be useful, is that in the graveyard? No. But there are other things, I suppose. I mean, volatility, we don't work at Somers as well, on forecasting volatility was a hot topic. And we hired Rob Ingel, who became a Nobel Prize laureate, Bob Ingle from University of San Diego, UCST, and spent a year with us. And we had a lot of fun with this. I kind of knew that we're not going to make any money on it, but it was really engaging. So we use Arch and Garch models, and we wrote some stuff about that and went out on the road. Because Mesrich, I'll mention him again. Well, I got Solomon in 87. And he was in another group, technology area somewhere, and had a PhD in math psych and he was a time series statistician. Everybody was doing cross-sectional, cross-sectional, even crudely at that. I couldn't find anybody who knew what Arema was or any time series classic econometric time series. He did, ask him to join our group.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“This restaurant is garbage. You sound very similar. And you read these blogs and you can associate that. So the slang is, if you don't like it, it's spicy chicken. Well, you can do unsupervised machine learning to actually come up with a whole set of those things.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, so many of them I'm trying to think back and stir the ashes of my own experience. For example, I think it's the case that this work we did recently my colleagues did on Acier Market. He did his analysis of reading 50,000 Chinese characters. And they're not sentences. And they did an association between the language use in the chat rooms. There's three or four of these blogs. It's a retail-driven market in China. And sentiment and positive negative sentiment. And because China... Country itself is kind of heavily regulated and there's some censorship of what you can say to Chinese characters or to Chinese expressions. One is garbage or bad. And the other spicy chicken. So you can say this restaurant sells spicy chicken.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, there are institutes that sponsor medical research that bring in young doctors, physicians who are just doing research on incurable diseases today, Alzheimer's or some cancer. Here's money. Here's your team.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Getting paid by people to manage their money, or on Wall Street getting paid by people to trade their portfolios as a firm. But discovery's fun. One of my annotations, young guy, smart guy does our NLP stuff. You can't stop him talking. He comes to my office yesterday. We're talking about, he says, I got to come back and show you the entire agenda for all this stuff. I would say, I don't know if he's talking about. I know enough about what he's talking about. If I don't, he makes sure I get it. But that you got to understand. Now, he's not going to be the type of person that's going to sell, manage accounts, go out and pester, pester, pester institutions, finally get into a semi-final, final, get business, and then onload it, right? But you need that. So it's a fun thing to watch. And we have an environment where that is the way people do it. The other D is dollars. I mentioned earlier, converting copy. People come into the business who they think you can make money, which you can. If that's your sole motivation, that ultimately will not help you run an organization. So the right balance.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, think about this. It's a good word. That's why I became an academic. I had no idea that I'd ever be doing this today.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Now, interns come in, several of the group of the last three or four years have become full-time employees. They become then PMs. You can't over-control, nor can you come up with a list of principles. You just have to enjoy it. I said earlier about the motivation.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“A lot of it is who you hire and how you develop a business model or if you will a recruitment model and a leadership model and people that come in that are creative that are maybe potentially asking the right questions, a very good friend of mine who was a contemporary academic came and visited me and visited with our firm for a while after I'd been at Solomon Brothers and he said, Eric, since you've been here, you become a much better academic because I knew what questions. You know, it was real. So I think A, yeah, trying to identify creative people, but B, giving them some rope to a fault. I've always done this, like with the example of being an instructor pilot. I believe my best approach to managing creative activities and research and money management in a business that has to make money for clients is yet still to allow a lot of freedom within reason. And I think we have two CIOs in there, and I've worked with these people for 20 years, and they've hired people. And our equity group have...”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's fascinating as an aside, when I was a Solomon Brothers, of course, we had a quantitative group which grew quite large that I organized. But we had a pretty good fundamental research team, which worked with the Salesforce institutional investors and also with the investment banking people. And at one point, one of the things you needed to do as an analyst that was understood is you needed to detect deception by the CEO, CFO, and so on. So we actually had psychologists come in and give lessons on how to interview and pick up things that might be red flags or green. So NLP is doing that, like all Quant, it's doing it maybe not as deep. It's doing it asystematically and broadly. That's breadth and scope.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Domain invented in dot vec234, whatever it is. The other is an example that a colleague of mine, Michael Channon and his colleagues, worked on, which actually reads Chinese characters to try to get an insight into sentiment in the ASHAR market.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“We have some colleagues that have actually done quite a bit in that, and we have some applications, and it's actually in our models. One application is to use the reading of filings, corporate filings. And there's a study done by a couple of professors at Rice were mentioned Renaissance, AQR. I think we were number two. They got information from the SEC as who's hitting that website, Edgar, to get all that information. We come second with number of hits, but we come first with a dispersion of all the things we're looking at, even the footnotes. So you read the literature, you know that when a CEO's talking, and if they talk too much, repetitive, I mean, there are red flags and stuff. So you can actually use natural language processing to associate certain terminologies and phrases in English to get inference whether this is actually a good thing or a bad thing for the company. Analysts do that. They do it by talking, but you can do it with natural language processing. And it's the same techniques that Google, which in the public.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, because they overfit. And then you know you got spurious results and you can't count on it necessarily. The other's natural language processing, which I come back to.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah. So I think that's a pretty good application. As long as the engineer or the designer knows the potential limits and pitfalls, the trees have to be pruned back. You can't just let them fully populate.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“He's amazing. He's a good friend of mine. Anyway, we started using classification trees because they're nonlinear and hierarchical and they're rules based. And the test statistic on R squared is like the probability you've got the right answer. And we use regression trees, but there was too much noise in that. So we classified with quintiles or deciles. Well, today the work he's doing in others, they use multiple trees, random forests, or they'll do multiple trees through time so the structure can actually learn and can adapt to changes in what causes return.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“we started using decision trees back when I was at Solomon. My colleague then Joe Mesrich, who's still a cell Syquant. I think the best cell site quant on the planet. I mean, we work together since 87. There are others I worked with too.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of course, that's been shown to be the case with a chess claimed computer versus a human go driverless cards. You think about all those applications, the two things I think come to mind. One is, regardless of how many possibilities there are in a chess game or in a car driving down the road, they're finite. And two, they're rules-based and deterministic. The rules. So you can think about an expert system that can actually do that. Maybe even facial recognition. You get into financial markets. A, both of those things break down. You have Brownie in motion. You have stochastic processes. It's almost an infinite number of outcomes of a security price. And is it rules-based? Not day-to-day. So that's an issue. But machine learning is a tool that actually can get inside and maybe come closer to getting a solution than if you were doing it just with your own head and some simple data. And I think some of the applications that are really interesting there, you mentioned stacked.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“The classic quantitative or fundamental portfolio, the manager or team or process ranks the security. So you're going to buy the higher rank securities. The question is, can you use advanced sort of techniques to identify value and seek relationships and get better inputs, right? And the buzzword today's machine learning or artificial intelligence is a term that I don't like to use with financial markets, but it's used. We have so many AI experts today in our field. I'm going to digress for a moment here. The way I think about that, and I think some of my colleagues would share this, first of all, you go back to the definition, and you know the definition by Alan Turing in 1950. If in fact the machine in those days, the computer, which is mechanical and somewhat artificial maybe in some sense, if it can produce results that are indistinguishable from a human, then it's artificial intelligence, maybe even better than the human.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the other part of it is the risk, what you call risk. And so, when I was doing these early models for enhancing the SP became, and then the real players came in, Wells Fargo, which became BGI, State Street, they came and saw me. They saw my counterpart of Goldman on the sales side. How do you do this? And they made businesses out of it. For us, it was just a nichy thing. And it was fun. And we made some money. We got paid, by the way, by transactions. So we weren't fiduciary. And it was a lot of fun. They perfected a lot of this, and the rest is kind of history there, but it evolved.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“We, for a really long time ago, were using a technique for looking at the signals, how they covary, and effectively try and optimize information ratio. And through time, as you look at the inputs, you can actually get a weighting scheme that comes right out of that. So that weighting scheme will give you the optimal IR of whatever factors you're putting in given the history of those factors. So as they change, that weighting scheme will change over time. So one of them is just the alpha, if you will, the weight you put on a signal within the composite ranking.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“These biotech firms really low odds, these above average odds. And so you buy the above average ones. So that's a data set that was unique. I call it smart data. And I say this about it. It has to be intuitive. It makes lots of sense because the analysts from the sell side are doing it. B, you have to be able to gather it and collect it. And if you can do it proprietarily, that's really a big deal. You're not buying it from a well-known vendor. And see, I believe most of our work, we believe, and maybe others are different than this, we have to have a reasonable horizon for the payoff. So price tomorrow is very rarely a dependent variable in things we do.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“If you have to do with drug trials, that's a coin toss in some sense. Well, it's not really because we'd call in the Goldman Sachs, the Morgan Stanley Analysts, the biotech analysts years ago and say, what do you look at? I don't look at prices, there's no earnings. We look at the FDA approval process and we look at what they're working on and we visit them. So we actually, a big term I use always is expert systems. This team build an expert system to mimic what that analyst knows about those handful of stocks if we're not as deep, but we know it more broadly. So that data set we've perfected over time. And there are other examples too. And even having said that, you have to continue to be ahead of the game. So there, and I don't know actually how we're running that today, but early on I know it was compounds and what cohort group are operating the same kind of discovery process of drug trials, what's the likely success with kind of a Markov chain analysis, a probabilistic model.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“and the data have to be smart. It's a $50 billion smart. I citigroup report a few years ago said the vendors of what's now called big data, the average of the revenues is enormous. A lot of those providers really don't have well-defined business models. They just happen to be nichey. They know some data. So the same things can happen there if you're buying from a vendor and other people have access to it, so we're aware of that. The other part of it is you can buy some, or you can actually then create by different sources. So the creativity there comes with an investment team that really knows where the data sources are. First, you're going to know what drives stocks. One of our groups have, I think, a pretty good model for biotech. It has nothing to do with financials. We've had this for 10 years. It's a part of one of our strategies. It's now a standalone biotech pharma portfolio.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“I agree, Patrick, there are two aspects to trying to win today. One is the data you're accessing, how you implement it, where you get it, how creative you can be with it. And there's a lot of data today. That's one. We'll come back to that. And the other is what are the tools you use to actually then extract value from that data? And they are the advanced, if you will, statistical techniques and other types of things that are needed today nonlinear, hierarchical, and maybe machine learning in some sense, real sense. But the data, I give this talk about, we call this smart beta and big data. So I call it smart data and big beta. Beta's too big.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source
“spreads were reasonable you'd buy the top one or two deciles very simple portfolio construction and it worked because well not many people were doing it that way and it was simple the way it worked was this was called the e-model and the way Solomon Brothers model and the way we worked is pension plan who had internal index funds. Several of them were clients of our firm. They would carve out some of their money in the internal counterpart to me, the person running the index fund, would implement what we told them. And so they tilt the portfolio toward this model and then it turned out it did better than their S&P 500 index more or less over time.”
2019-07-23 · Invest Like the Best · Eric Sorensen - How Quant Evolves - [Invest Like the Best, EP.139] · IDENTIFIED FROM THE TRANSCRIPT · source