YouSaid · the spoken record

Jon McAuliffe

lines on the record: 93
first: 2023-09-08
most recent: 2023-09-08
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“I think one of the most important lessons that I had to learn the hard way kind of going through and running these systems was that it kind of comes back to the point you made earlier about the primacy of prediction rules. And it may be true that the most important thing is the prediction quality, but there are lots of other very necessary mandatory ingredients. And I would put kind of risk management at the top of that list. So I think it's easy to maybe neglect risk management to a certain extent and focus all of your attention on predictive accuracy. But I think it really does turn out that if you don't have high quality risk management to go along with that predictive accuracy, you won't succeed. And I guess I wish I had appreciated that in a really deep way 25 years ago.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Both in terms of your own satisfaction and how much you learn and all of that. I think you'll learn, you'll benefit hugely on a personal level from working with incredible people. And if you don't work with people that are like that, then you're probably going to have a lot of professional unhappiness. So it's kind of either or.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so I mean, I work in a very specialized subdomain of finance. So there are a lot of people who are going to be interested in investment in finance that I couldn't give any specific advice to. I have kind of general. Advice that I think is useful both for finance and even more broadly. This advice is really kind of top of Maslow's pyramid advice. If you're trying to Of write your novel and pay the rent while you get it done. I can't really help you with that. But if what you care about is building this career, then I would say number one piece of advice is work with incredible people. Like far and away, much more important than what the particular field is, the details of what you're working on is the caliber of the people that you do it with.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“All based on the same kind of facts that you know. It's the framing and the framing and the perspective that really kind of blow your mind.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm fascinated. I find it very different from my day-to-day reality. So I think it's a great change of pace for me to be able to read this stuff. So some science writing, I can tell you, probably the best science book I ever read is The Selfish Gene. By Richard Dawkins, which kind of really have a kind of intuitive understanding of genetics and natural selection in Darwin, but the language that Dawkins uses really makes you appreciate just how much the genes are in charge and how little we as the he calls organisms survival machines that the genes have kind of built and exist inside in order to ensure their propagation. And the whole point of view in that book just gives you, it's really eye-opening, makes you think about natural selection and evolution in genetics in a completely different way, even though it's”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Wow, okay. Let's see. George Saunders. He, oh, wow. I think you'd love him. So his real strength is short fiction. He's written great novels too. But 10th of December.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah. Right? Yeah. Really, really amazing books. I'm rereading right now Cryptonomicon by Neil Stevenson. And one other thing I try to do is I have very big gaps in my reading. For example, I've never read UpDike. So I started reading the rabbit series.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, my other kind of big interest is science fiction, speculative fiction. I knew you were going to go there. Unsurprisingly, right? Sorry. Let's go. Sorry. So there are some classics that I think everybody should read. Ursula LeGuin. Love her. Just amazing. So the dispossessed and the left hand of darkness. Those are just two of the best books I've ever read, period.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Wind up Bird Chronicle by Heruki Murakami. Those are two of my all-time favorite books. There's, I think, much less well-known but beautiful novel. It's a kind of academic coming-of-age novel called Stoner by John Williams, a really moving, just a tremendous book. Sort of more dystopia would be White Noise, Delilo. And kind of the classics that everybody knows 1984 and Brave New World, those are two more of my favorite.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“So I'm a big fan of modernist dystopian fiction. So a couple of examples of that would be the book Infinite Jest by David Foster Wallace.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, exactly. It was just a real, it was kind of a once-in-a-lifetime privilege to get to spend time with someone of that intellectual caliber. And there were others too. I mean, I've been very fortunate.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“The pragmatics of actually doing that analysis. He spent a lot of time as an expert witness. He was the lead. Statistical consultant for the case on census adjustment that went to the Supreme Court. In fact, he told me that in the end the people against adjustment, they won in a unanimous Supreme Court decision. And David Friedman told me he said all that work and we only convinced nine people. That's great.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“I worked with a couple of people who managed me, Ade Shaw, Yossi Friedman, and Kapila Mature who have gone on to hugely successful careers in quantitative finance, and they taught me a lot too when I did my PhD, my advisor, Mike Jordan, who's a kind of world-famous machine learning researcher. I learned enormously from him. And there's another professor of statistics who sadly passed away about 15 years ago named David Friedman. He was really just an intellectual giant of the 20th century in probability and statistics. He was both one of the most brilliant probabilists and also an applied statistician. And this is like a pink diamond kind of combination. It's that rare to find someone who has that kind of technical capability but also understand.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, Mary, I've been lucky to have a lot of people who were both really smart and talented and willing to take the time to help me learn and understand things. So actually my co-founder, Michael Keratanov, he was kind of my first mentor in finance. He had been a DE Shaw for several years when I got there and he really taught me kind of the ins and outs of market microstructure.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's on Hulu. It's from Australia. It's about a guy who's a doting father living his life. He's also essentially a muscle man and hitman for local criminals in his part of Australia. But it's half hour dark comedy.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“So really, really love that show. I was late to BetterCall, but I'm finishing up. I think as good as Breaking Bad. Maybe when you haven't heard of, there's a show called Mr. Inbetween, which is.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think it's happening. It's been happening for quite a long time. For example, all of modern portfolio theory really kind of began in the 50s with, you know, first of all, Markowitz and other people thinking about what it means to benefit from diversification and the idea that diversification is the only free lunch in finance. So I would say that the idea of thinking in a systematic and scientific way about how to manage and grow wealth, not even just for institutions, but also Had profound effects”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's right. As statisticians, we tell people if you think that you've experienced a six sigma event, the problem is that you have underestimated Sigma.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, those DNs, right? So there are these essentially these investment products that were short VIX and VIX went through a spike that caused them to have to liquidate, which was part, I mean, the people who designed the 16 traded note, they understood that this was a possibility, so they had a sort of descriptions in their contract for what it would mean. But yeah, always surprising to watch something suddenly go out of business.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think ETFs are a kind of a good source of these examples. So the volatility ETFs, the ETFs that are based on the VIX or that are short the VIX, you may remember several years ago. I was going to say the ones that...”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Trust us, it's all It is surprising when you find out about it, but you quickly come to understand if you trade single name bonds as we do, you quickly come to understand why bond ETFs work that way.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“And so it's not even at all clear what you mean when you say that the nav is this or that relative to the price of the ETF. So when I...”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the bind ETF, there's a sense if you're a market purist in which they can't be mispriced because their price is set by supply and demand in the ETF market, and that's a super liquid market. And so there may be a difference between the market price of the ETF and the nav of the underlying portfolio. Except in many cases with bond ETFs, there's not even a crisply defined underlying portfolio. It turns out that the authorized participants in those ETF markets can negotiate with the fund manager about exactly what the constituents are of the Create Redeem baskets.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think corporate bonds provide a lot of examples of this. I mean, the fact that you don't actually really know a good live price or a good live bit offer seems, you know, it's surprising. I mean, this is fact has started to change. Like over the years, there's been an accelerating electronification of corporate bond trading. And that's been a big advantage for us, actually, because we were kind of first movers. And so we've really benefited from that. So the problem is diminished relative to how it was six, seven years ago when we started.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Is not uncommon at all. No. It's a nice, you know. This kind of wishful thinking that, oh, we have, you know, we figured it out in one asset class in the sense that we have a system that's kind of stable and performing reasonably well that we have a feel for. And now we want to take that system and somehow replicate it in a different situation. Well, we're going to standardize the new situation to make it look like the old situation. That's the principle. That principle kind of quickly goes out the window when you start to make contact with the reality of how the new asset class actually behaves.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Surprisingly, if you're trying, if a software is trying to fly an airplane, there are six things that it absolutely has to know. It has to know the XYZ of where the plane is and the XYZ of its velocity where it's headed. Those are the six most important numbers. Now, nature does not just supply those numbers to you. You cannot know those numbers with perfect exactitude. But there's lots of instruments on the plane, and there's GPS and all sorts of information that is very closely related to the numbers you wish you knew. And you can use statistics to go from all that stuff that's adjacent to a guess, an infill of the thing you issue new. And the same goes with the current price of a corporate bond.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“I have lots of related information. I know this bond, maybe this bond didn't trade today, but it traded a few times yesterday. I know where it traded. I'm in touch with bond dealers, so I know where they've quoted this bond maybe only on one side over the last few days. I have some information about the company that issued this bond, et cetera. So I have lots of stuff that's related to the number that I want to know. I just don't know that number, right? And so what I want to try to do is kind of fill in and do what in statistics or in control we would call a now casting problem. And an analogy actually is to automatically controlling an airplane.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely No, it's a statistics problem, but it's a different kind of statistics problem. We're not. In this case, we're not trying to predict the future of any quantity. We're trying to say, I wish I knew what the fair value of this QSIP was. I can't see that exactly because there's no live order book with a bid and an offer that's got lots of liquidity that lets me figure out the fair value.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“And that is already a problem you have to solve in corporate bonds as opposed to being just an input that you have access to.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, we have, it's a great question. So we're trying as much as possible to get the problem for a new asset class into a familiar setup, into as standard a setup as we can. And so we know what these systems look like in the world of equity. And so if you're trying to do the same kind of system for corporate bonds and you start off by saying, well, okay, I'd like, I need to know closing prices or intraday prices for all the bonds. Already you have a very big problem in corporate bonds because There is no There is no live price feed that's showing you a bid offer quote in the way that there is inequity. And so before you can even get started thinking about predicting how a price is going to change, it would be nice if you know what the price currently was.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“I really enjoy. Principally, what it means is that I get to work with PhD students. And we have really Outstanding PhD students at Berkeley in statistics. And so it's an opportunity for me to do a kind of intellectual work, namely writing a paper, laying out an argument for public consumption, et cetera, that is kind of closed off as far as belief. So not adjacent?”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“I guess I would have to say I really do that as kind of a double life of non-financial research. So it's just something that”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Papers are, you know, we don't write papers for external consumption. We do lots of writing internally, and that's to make sure that we're keeping track of our own kind of scientific process.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“What I would say probably is kind of evidence based rather than academically focused. Saying academically focused gives the impression that papers would be the goal or the desired output. And that's not the case at all. We have a very specific applied problem that we are trying to solve.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“We don't. No, I don't think we do. I mean, apart from that, apart from reading about, right, but everybody is undone by a failure that they didn't think of or didn't know about yet. And we're extremely cognizant of that.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“And we do not congratulate ourselves on having avoided mistakes. We think those people were smart. I mean, look, you read about these events and none of these people were dummies. They were sophisticated. Nobel laureates, right?”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“How influential is something like that? Well, 100%. I mean, look, I think the most important adage I've ever heard in my professional life is good judgment comes from experience. Experience comes from bad judgment. So the extent to which you can get good judgment from other people's experience, that is like a free tuition. And so we talk a lot about all the mistakes that other people have made.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes Yes Barry, they made a number of mistakes. Yeah. The book is good. So when genius failed. Oh, absolutely. I love that film. Fantastic. Really fascinating episode. So”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“If That's right. And it is probably the single thing that undoes quantitative hedge funds most often is that they misunderstand how much they're moving prices. They get too big. They start trading too much, and they sort of blow themselves up.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“An understanding of how much you are going to push prices away from you when you try to trade. This is a reality of all trading. If you buy a lot of a security, you push the price up, you push it away from you in the unfavorable direction. And in the systems that we run, the predictions that we're trying to capture are about the same size as the effect that we have on the markets when we trade. And so you cannot neglect that impact effect when you're thinking about what portfolios to hold.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so there are three big ingredients in the portfolio construction, the predictions, what is usually called a risk model in this business, which means some understanding of how volatile prices are across all the securities you're trading, how correlated they are, how if they have a big movement, how big that movement will be. That's all the risk model. And then the final ingredient is what's usually called a market impact model. And that means”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I understand the sentiment. I mean, it's worth emphasizing that you do not get to a successful systematic strategy without all the ingredients. You have to have clean data because of the garbage in, garbage out. Principle, you have to have accurate predictions, but predictions don't automatically translate into returns for investors. Those predictions are kind of the power that drives the portfolio holding part of the system.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, through a lot of effort. Essentially, we have an entire group of people who focus on data operations both for gathering of historical data and for the management of the ongoing live data feeds. There's no way around that. I mean, that's just work that you have to do. You just have to brew.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Think that's fair. I mean, to different degrees, the data gathering, that's That's a largely a software and kind of operations and infrastructure job.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, they're all machine learning based. The kind of principles that I've described of using as much complexity as you need to maximize predictive accuracy, et cetera, those principles underlie all the systems. But of course it's trading corporate bonds is very different from trading equities. And so the implementations reflect that reality.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“So, you know, an example would be the weather for most securities, you're not going to be very interested in the weather, but for commodities shutures, you might be. So that, you know, that's the kind of reasoning you would apply.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think we're prepared as a research principle. We're prepared to consider any data that has some bearing on price formation, like some plausible bearing on how prices are formed. Now, of course, we're a relatively small group of people with a lot of ideas. And so we have to prioritize. In the event, we end up pursuing data that makes a lot of sense. We don't try.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“And we had met at DE Shaw in the 90s and been less excited about this idea because the methods were pretty immature. There wasn't actually a giant diversity of data back in the 90s in financial markets, not like there was in 2005. And compute was really still quite expensive in the 90s, whereas in 2005 it had been dropping in the usual Moore's Law way. And this was even before GPUs And so, when we looked at the problem in 2005, it felt like there was a very live opportunity to do something with a lot of promise that would be really different. And we had the sense that not a lot of people were of the same opinion. And so it seemed like something that we should try.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“That's true, and I had already been really interested in the problems of systematic investment strategies from my time working in DESHA. And so my co-founder, Michael Caratanov, and I, you know, we were both in the Bay Area in the 2004, 2005. He was there because of a firm that he had founded and I was there finishing my PhD. And we started to talk about the idea of using contemporary machine learning methods to build strategies that would be really different from strategies that result from classical techniques”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source
“The kinds of fields where you would expect uptake to be slow are where it is hard to assemble large data sets of systematically gathered data. And so any field where it's relatively easy to at large scale, let's say, produce the kinds, the same kinds of information that experts are using to make their decisions. You should expect that field to be impacted by these tools if it hasn't been already.”
2023-09-08 · Masters in Business · Jon McAuliffe on Innovation and Statistical Methods · IDENTIFIED FROM THE TRANSCRIPT · source