YouSaid · the spoken record

Jonathan Briggs

lines on the record: 47
first: 2021-12-24
most recent: 2021-12-24
sittings or episodes: 1
sources: podcast

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“Have a website delphia.com. We'll be creating an institutional website as well in the near future. There'll be papers that we think our thought processes, primarily on the institutional side. There's always some interesting I would say just look forward to, we're just getting started. We're only nine months in. I'll be talking to folks in different channels shortly in the near future. Thank you for having me. I mean, this is very cool. I mean, you have a great podcast. You had some really incredible people on here. It's an honor to spend an hour with you.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“So we have two sets of strategies. One set is available to institutional investors. Another strategy is just become recently available for retail. The reason you have to create separate strategies is the legal requirements for investing with institutions are very different than for retail. So I'd love to be able to say that we can take exactly what we do for institutional investors and give it to retail. But the law will allow you to do that. Perhaps there's been some evolution in the last year and SEC regulations, so perhaps there's some things you can do, a closer approximation to what you can do for institutions. I would say the biggest difference is that one uses leverage as pure long short. That seems to be suitable for institutional investors who can handle that kind of approach. And then if you go to the other side, you can think about long-only or light-beeth leffered products that are available for retail. But as I said, things are evolving, so perhaps there's some way to make one available for the other. In the US, the retail side is...”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“That view of the world is very aligned with me now and our team and our investing style, but in the context, again, of the active portfolio management book, which is this portfolio construction handbook.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“By the way, the money ball is hilarious. So we called this process of trying to understand what moves markets. We call the money ball, obviously. That's a nice ring to it, right? Yeah, so there are two books which I look at as foundational for me and I have my team meet them obviously. So one is active portfolio management by Richard Gernold and Ron Kahn, which doesn't talk to you anything about forecasting the actual returns, but it tells you about all about portfolio construction. So assume you have some forecasts, how do you put portfolios together? And this book was seminal in the field and continues to be sort of the Bible or the rock on which fundamental quantitative testing is built upon. The other one surprisingly is John Cochrane has a book called Asset Pricing, which talks about a very generalized and quite beautiful framework, how anything can be priced, whether it's a pair of tennis shoes or wine or equities or fixed income insurance. So again, hopefully you can see the connectivity.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“It's meeting our expectations because we're seasoned at this. We look at our back tests, we look at our thesis, and we say, this is what we think we should expect out of sample going forward as we invest. And we've met those. I've been quite delighted that we haven't run into the things that we know are out there. So even when you're looking at a back test, there are certain conditions in the world where every strategy is likely to maybe not at the same time, but every strategy has a weakness. And the way I look at it is like, we've had a nice nine-month run. We know there are bad stakes in the world out there. None of them have shown up in that nine months. We know they're there. It's kind of like some horrible venomous spider rolling around. You can step on it anytime, but it hasn't happened yet. And so we're quite happy. It's been a joy to watch that.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“If they dominate the market over all horizons, then that's a problem. What I would hypothesize is what we've seen so far is that's a short horizon thing again, right? So this idea that voting machine weighing machine, we're seeing a big impact on the voting side of the equation through retail flow. Will that stay that way? I don't know. Interesting to watch. But again, they're a cohort. We can look at what they do.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“So, for instance, Robin Hood was a, they created a whole different world for retail investors. It's free trade and lots of access to leverage. But remember, those are cohorts. So there already were cohorts. There's hedge funds. There are mutual funds. There are ETFs. There are flows. Now you just have another one, which is very, very strong. So if you try to imagine there's a cohort of one cohort, which is we're simply buying it, but one cohort of retail investors, where would they line up on these expectations of future events? And if you're better than they are, then obviously they're arbitrageable. The deeper question is, will retail look more and more like GameStop shenanigans or will it look like fundamental investors? Will it look like they end up and how would they impact prices? Because if they end up in a GameStop sort of situation where fundamentals don't matter, then it's problematic for our strategy. It doesn't mean that it's impossible for us to work with.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“It's a very, very hard came, but you're exactly right. We are looking at probabilities. We're not looking with certainty. So that's how our portfolio has evolved, is that we look to the future at various horizons and we say, the probabilities are changing at various horizons. Because you can imagine companies being successful in the short term and not in the long term and vice versa. And so we're playing this probabilistic system and letting our ideas sort of flow into portfolios that try to capture these through time. And it's quite complicated.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Totally right. So I've spent some time talking with DeepMind here and there for folks who work there and researchers and things. And yes, you're exactly right. I mean, AlphaGo is actually quite beautiful in many, many ways, almost exquisite. Good for them. But they were able to harness the concept that we can't in the world of investing. So they can create data so they can play many, many games. They create this adversary relationship between different cohorts or they can create cohorts who play one way and another way in another way and they can force them to play each other at super high frequency and learn and learn and learn and learn. And so this is ideal for machine learning and AI. On the investing side, we just have to sit and watch Paint dry, right? You just have to wait a thousand years for more observations for MoC, more cohorts, particularly if you're going directly for returns because the dynamics of returns themselves are so problematic. So you have to find structure for machine learning in that context, which we haven't seen. Don't want to take anything from deep mind, but in the context where you're at limited observations, it's a much...”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“You take all these very powerful things and focus them on the way that has a high probability of success, we found one way perhaps others will find others, but that process of understanding is very hard. Takes many years of experience to understand. So it's an intimidating and daunting thing to think about if you haven't sort of grown into it over the course of 15 years of your life to sort of internalize all of this and understand it in a sort of coherence.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Yes. So we taken a ton of data. Look, our costs are huge for compute data. And I'm sure it is with RentTech and Too Sick. It's really, in some ways, we could use more data. So we're always looking for other data sets because this helps inform our forecasting exercise. And I think you can't play in this without a ton of resources. As an individual, you could never compete at this scale for these things. It's an arms race. Perhaps there is an arms race for distance to the exchange, which is high frequency players played in for a long time. And that sort of been tapped out, right? We don't hear about people building any more microwave towers, or maybe we are, but not as many as the hummingbird project or whatever is not, you know, it's not the thing anymore. Prediction is the thing. That prediction is going to create a new set of constraints in arms race around data and all likelihood and around talent to do machine learning and around frameworks. As I said, how do you do it?”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I think actually any investment approach will hit a ceiling. So there's only so much you can move markets, move around in markets before you move the market. And then you know that you've lost whatever edge you're going to have. So the bigger you get, the less nimble you are in terms of being able to express your positions without people being able to follow you or front run you. So Rentech, the hitter limit, and so they capped up the amount of capital that could go in. To be fair to Rentech, you know, I mean, they certainly invested a lot of time, energy, and money into building machinery, working with data that's very expensive. It's only natural that at some point they have to close to maintain the returns they're trying to and be able to compensate themselves for the amount of effort they put into that. That's true of any strategy. Fundamental strategies as well, right? They'll reach a capacity, albeit if they're working in large cap space because of liquidity, they'll reach it later than, say, a quant who's potentially operating it.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“You don't really care as long as you're right, as long as you're getting those bets and the numbers of tables, the numbers of times at the table is large.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“That's exactly right. So the activities and what's the weight of fixed income versus equities or commodities or whatever yet, that's their active debt. The big addition for institutional investors in particular is that they're looking to increase the beyond the asset allocation. They're looking to increase their return because they have obligations like Canada Pension Plan Investment Board. It has obligations in the future. So being able to increase beyond just passive exposure to or semi-passive exposure to equity, to risk premium, provide some extra juice to help cushion the blow that they're going to have in terms of meeting their obligations. In fact, when you go to a pure long short portfolio, you're not even really, it doesn't really even matter that you're in equities or fixed income or commodities, not in the sense that you still need to do security selection. You have to understand the underlying system that you're working in, but really you're not trying to harness the risk premium within those asset classes. You're really just adding one person. It could be anything.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“For 10 years Threat, in which case, in that sense, you're just buying the equity risk premium, just buying an index fund, allows you to coast along with all that noise and ignore it and just get the value of being long in equity with a group of equities which are likely to go up over time.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Right, the chaos would go. I like that. So, you want to understand because not everybody is going to be right. At some point, there's a truth moment where your bet is marked to market in a contrarian view is marked to market. And typically markets figure it out shortly before the reveal. So there's a lot of correction that goes on, but there's a market-to-market. And in that moment is where you see returns becoming really, really interesting. In the case where you were right, let's say you were the dominant view, let's call it consensus for argument's sake. And the contrarian view has to correct itself. So it would have been losing money all along the way because it was you were dominating price. Prices moving against their view. Contrarians look at you and they say, oh my goodness, you were right. They switch directions and they match your position.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Disagree with you in the market, and they'll invest a certain amount of money to disagree with you, and they'll impact price as well. So you end up with this equilibrium state, which gets created in price, where there's a certain amount going one direction and a certain amount going, and there's certainly one that's dominating, but that dominance is not so severe that price becomes crazy. It doesn't go one direction or another very, very, very rapidly.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“So, to your point, expectations are not a single beast, right? There's multiple cohorts of investors out there investing in a particular style. And so they have their own expectations. To avoid being stuck with one set of expectations, which can be right or can be wrong, in which case you've kind of limited your ability to earn returns if you're always fighting one set of cohorts when another one is actually dominating price. You have to understand the heterogeneous nature of investors. So Bridgewater talks about this a lot as well. We've internalized these ideas very deeply ourselves is that even if we take a very simple example, there's a dominant view in the market which has expressed by the dollars being invested in a particular view. So let's say you say sales growth is going to be high for this company. And there's a bunch of people like you and you open in a lot of money into that view. Well, if that were the only view in the market that price would shoot up, it would go crazy. But we know there's a set of people who”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“So, as I said, the ideas behind quality and value momentum, my expectations had paled a bit. And I've also mentioned the fundamental investing world off seemed like a very fruitful direction to go and look and learn from. And so that's exactly what myself and my team, we did. We basically took a pause at the time and we sat back and we said, let's try to re-examine some first principles, what it is that we actually believe that markets are doing. And let's see if that ends up back at quality value momentum again, which is fine, in which case we've come for a circle, or perhaps we end up in a different place. And luckily, I had a FOT partner in this incredibly human being, Frank Arachi. He's now the senior managing director of Global Equities, Fundamental Equities for CPVIB. I've known him for 12 years almost now. And he and I and my team at the time, we sat down and we started to think about, okay, first principle, what do we believe in? Well, first of all, what we said was, you know, markets are forward-looking. So price is a function of...”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“So this is true even in our framework, which deviates from quality by momentum, but to your point, that's exactly right. So this is diversification. Diversification is the number of stocks, but it's also the number of ideas. So momentum as an idea or value as an idea or quality as an idea. You want them ideally what you'd like them to have is different return signatures through time. And so what that allows you to do is build a portfolio which is robust across different regimes potentially. And so that's exactly what they're looking for. So diversification across factors is part of the lexicon for quantum investing.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Or your transaction costs. So quats have traditionally never really gone out as far into the future as fundamental investors. Fundamental investors were really king like Buffett. I mean, I don't know. Maybe he's looking out 10 years. Maybe he's seven years, five years. But they're really pushing the boundaries of forecasting it into the future. And quants have not done that to date. These ideas of quality value momentum, you're looking at about a three-month horizon, maybe a little bit longer with some value factors, maybe six or seven, maybe eight months out. So you really left behind this whole idea of long horizon forecasting. And I would argue that actually quite deeply that quants are not forecasting in the strong sense that a fundamental investor is doing, if that makes sense.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Can you make things that are more forward-looking, more prognostication to help you with and then use that in a less speed, but more future looking? The primary reason you want to do that is because high frequency trading has an impact on markets that erodes whatever returns because you're paying costs because you trade more and more and more. And markets are smart as you trade fast and you trade more and you trade with more dollars, more and more people are attracted to that behavior front-running. So it becomes this sort of endless, sort of like a fruitless exercise to try to trade too fast because then you erode all the returns that you may have had by understanding something better. So if you really want scale, if you really want to trade a lot of dollars, this is why institutional investors are attracted to these ideas is that you want to trade slower and you want to hold for longer. And then that reduces your friction.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Who are not really looking for speed, they're looking for understanding a thesis that says, I can make not many bets in time, not too many bets in time, but a lot of bets across names. When I say cross-section, it's the company dimension or the time dimension. So the cross-section is the company dimension. Time dimension is a whole different game. And it turns out that you want to use as much and both as you can to increase the statistical significance. I want to caution people not to think of this quantity all the time. That's certainly like the flashboys and things like that became very popular and are easy to understand speed as an advantage. But I would flip you over towards the fundamental space, which says speed isn't the only advantage, but being able to predict is another advantage. And fundamental investors do that all day, every day. And so perhaps a mix of those two ideas, which AQR and BGI sort of extended into, and I think that we extended further in that direction is”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“That effect. And also, the idea that you can test things in time and geography so you test an idea in Japan, test it in the US, Canada, Australia, emerging markets, and you test it through multiple cycles of macro cycles. So that helps you build up a body of evidence that whatever you're doing probably doesn't have as much bias as you might have if you were just a do it off the side of your desk off the top of your head. That's the idea that it can introduce some firewalls to the bias problem. Quantum don't necessarily have to trade quickly. So when I said that we made lots of bets, there are two ways to make lots of bets. One is to make lots of bets across many stocks and one is to make lots of bets through time. So high frequency traders might trade three stocks, but do it every millisecond. So that's a lot of bets. As long as their bets are independent of each other, then that's a great way to bring into that idea of breadth. But there's another set of quants like myself and Barkley's global investors in AQI.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“A bunch of interesting points you brought up for one is how do quants trade and then the other thing is the biases when you are trading the second judging, the triple judging, the quadruped, looking back, maximizing your regret. So yes, indeed, the systematic process is tied to this idea of a backtest is to try and remove the biases. So you create a thesis and that thesis you believe in and make empirical evidence around it being properly vetted and properly tested sort of like a scientific method almost, then when you let it go, the impetus to interfere with that is very low. So there's a big barrier to jumping in to try to overcome that. And so that prevents me from introducing your own biases. So certainly in your research, you could have introduced your own bias, which happens a lot, by the way, even in quantitative space. But getting the process moving does the thesis is to try and remove that.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“That's a long way to say that that property of investing skill times the number of bets you make is true for anyone. Obviously, the trade-off between skill and the number of bets you make can be made, which is why we see fundamental investors taking very few bets, but they potentially have very high skill. There's potentially quantitative investors have lower skill, but have many more bets. So you can kind of make up for those two things. If you think about somebody trying to do this on their own, that number becomes really problematic. The number of bets you have to make becomes almost unmanageable if you're managing a portfolio with 10,000 securities in it. It's almost impossible for an individual to do or do well.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“The concept of quantitative investment, which is this idea that your returns or your risk-adjusted returns are a product of two things. One is the skill you have, which is intuitive to everybody. Multiplied times the breadth or the number of attempts you have to express that skill. So think about it as gambling. If you can count cards, you go to Vegas, you get thrown out of the casino probably. But let's assume you don't get thrown out. You can count cards and just sit at a table and you play blackjack, single-deck blackjack. The advantage conferred upon you by counting cards is small. It's not huge. And so to really sort of read through words of that ability to count, you have to sit at the table and play many, many, many hands. And so that's a perfect example of a combination of skill, which you have to beat the house plus the number of times you can make those bets. It's kind of like gravity. Maybe you don't believe in it, but it's true. It exists. It's statistically closest thing to a proof you can do. So protected in investing.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“That investors think about it. And so that was a, as it became more and more evident to me that what we had was commoditized on the quant side, it became more and more evident to me, as I said, that in the fundamental space, there's a lot of rich understanding of what markets should be doing or could be doing or might be doing. And as a quant, we've kind of ignored that channel. You may have a superficial interest in it. So for me, it was, well, if we're going to look someplace new, there's this whole body of work, which we've disregarded because it isn't statistically interesting. And what is it? We have some shining examples of folks who outperform the markets for a long time. We should learn something. And that was a bit of humble pie, right? It's basically being able to say, hey, I've invested whether it's the applied math background, the PhD plus all the statistical analysis we did. And maybe somebody else can teach you something new. And that was really provocative for us and for myself.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“The idea was you had successful investors. These were folks who had a long track record, had shown resiliency across many market conditions or market cycles. So the question really was, from the quantitative perspective, what we've been told always, or intuited ourselves or argued amongst ourselves, was that folks like these shouldn't be successful by definition. Why? Because they don't have massively diversified portfolios. They don't have three, four, five thousand stocks in their portfolios. They're actually very focused on understanding companies at a very detailed level, but at a company, they're not thinking about these things as, you know, if I backtested this idea, would it give me a great result? They're really saying, hey, this is a company. This has a purpose that exists to do something. And is it the good thing? And that could be applied to macro as well. It doesn't have to be just company, but applied to credit can be applied to currencies, whatever it is that you can really sort of dig in and try to understand what it is the real economy is doing and then try to understand.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, exactly. So actually this was the choice that faced me on the research side of things. I said, I looked at this and I said, look, Goldman Sachs has shown up at my door, offered to sell me this thing. And this was prior to 2017. So in expectation, something this commoditized and other providers too, whether it's Vanguard, for instance. So should I expect outperformance based on these things? And I made the decision that no, I don't think that this is likely to continue to put performance we've had in the past. We need to do something different. To do something different, you obviously have to invest time, energy, and resources, which is never an easy decision and an ongoing concern, particularly of an asset manager.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“This is exactly right. This is the result of investors who put money into quantitative strategies, particularly institutional investors, are quite frustrated. So 2017, 2018, 2019, 2020, this idea of value, quality, and momentum just didn't perform well. And it was broad-based across most of the quarantine investing universe.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“It's sure to revert six. Experience more into performance. Seven, publish a paper. This is critical because only smart people can publish papers and smart people are good at investing. Eight, experience more in performance. Nine, tell clients that the strategy requires patience and that the fact test results are more indicative of the future than the live results actually are. Ten, experience more underperformance. 11. Claim that smart beta providers as a whole have overpromised that you are absolved of any such wrongdoing because you are criticizing everybody else yourself. Experience more in the performance. Experience some outperformance, but not nearly enough to make up for Inception to date underperformance. Declare victory. That's sort of the view now of the allocators to quantitative investing.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“I do to other institutional investors one particular very smart investor came back and said, here's how I view smart beta life cycle. Do you have a sec, I could read it to you. Okay, so there's 15 steps. I know it sounds like a lot, but it'll go quick. One thing I want to point out is quant's basically talk about backtest, which is this idea that I can simulate an investment strategy and show you the returns that would have had, and you should feel very comfortable then that this thing will perform like that the future, which of course everyone should know that's probably not the way it's going to play out. But instead, the back testing is part of the whole process of quantitative investing. So step one, launch product with amazing backtest. Okay, looks great. Two, experience underperformance, okay, terrible. Three, show clients that similar underperformance have shown up in the back to this. So it's just statistical noise. Four, experience more underperformance. Five, show clients at the level of underperformance has never appeared in the back test.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“The process of building this is very, very systematic. You can have computer do most of the work. They rebranded this smart beta. So they took something which was considered proprietary and exceptional in alpha, which is this idea of being able to beat expected returns with it, comes back and says, okay, well, now this is something very commoditized. I can sell it to everyone. And this became the smart beta revolution where everyone is buying exposures to things, whether it's price earnings or free capital price, whether it's momentum, whether it's quality factors. The smart beta just became a way to sort of justify that this thing exists in the context of a particular type of regression framework. And Kwant's led to talk about things in a regression framework. So it was just a natural way to start marketing the product. I think it's had, you know, if you'd said some fairly dramatic effects on people's view of quantitative investment because it looks very commoditized at this point. In fact, in the process of sort of talking about what”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Just described as a whole other level. So what happened there was this is a fascinating story. It's the evolution of quantum in some ways, maybe not for the better. So BGI and AQR and places like this were building these factor portfolios and adding, you know, using them for investing. But just in the way I described them to you, I think it should become clear that they're not so sophisticated that they can't actually can't remember them and walk out the door and go to some other place in a reconstruct them. So there's this diffusion process where quantitative ideas became fairly well known in the investment industry. In fact, people published articles about them. Obviously, they material with finance. They make books about them. So what happened was that providers of product sort of took away from the hedge fund world, the quantitative hedge fund world and said, well, look, I can just repackage these very same things and sell them back to whoever wants them, whether it's retail, whether it's institutions at a very, very cheap price.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“I would say a very typical or traditional quantitative investment strategy. You can use equities, you can use it macro, you can use it in credit.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Momentum is actually very different. It's basically saying if I look at a particular company and I see the trend in its returns over the last year for six months or however long you want to look for that trend, it again indicates to you that trend should continue. That's the underlying thesis. So then you can rank companies based on these trends. Now the idea is then you have these three factors, these three buckets that all sort of look alike in terms of within a bucket. And you can create portfolios of each of these and then add them all together. So you essentially averaging across all of these what we call characteristics of value, quality, momentum are characteristics that you can average across now you can be bespoken the amount of weight you put to each one of these and that of course is part of the secret sauce for some quantitative investors but in the end you end up with an aggregate portfolio everything that's squished together and you have an aggregate view and this then gives you the ones with the highest ranking is the one you want to go long the ones with the lowest ranking are the ones you want to go short and so this is a”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“The process of transforming these quantities into a portfolio, which is very straightforward. And then they backtest it or they run it live. Now, it turns out that these three categories, they become, they're not a single factor, but they represent a bucket of factors. Value is this idea that like free cash flow to price. So it's this idea that there's a certain amount of free cash flow company has if the price is very high and that's less attractive than a company that has high free cash flow, the price is very low. So fairly intuitive. And you can rank all the companies of interest in that context. So that's a value factor. This idea that something over price is a value factor. Quality is essentially a measure of profitability, for instance, so gross profits, the total assets. Again, it's a ratio to kind of normalize to the size of a company. But again, you can rank the more gross profits compared to the total assets you have, obviously the better the company you think it will be. And so you can rank on these things.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, in fact, when people talk about quantitative investment, they basically lean into this concept of value, quality momentum, sort of the pillars. In fact, AQR, which is now one of the preeminent quantitative investing shops, their founders published a bunch of articles related in the Journal of Finance, et cetera, on these types of behavioral ideas. But they go back quite that behavior, but these types of exposure ideas. They go back quite far in times of so fama French where the original creators of the ideas of these broad cross-sectional exposures that explain turns. And what I mean by that is what they do is they take a group of companies, which maybe it's the S&P 500 or the Russell 3000, and what they'll do is they'll essentially create a characteristic which could be a ratio or some quantity that basically describes something about a company. They then take these and they rank them across the entire set of companies that they're interested in looking at. So again, the S&P 500, they're Russell 3000. These didn't describe a portfolio.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Another pension consultant, so I don't really know the health of the average pension system in the world, but there are certain countries which have had the foresight to look ahead and say, you know, look, we have a demographic problem, we have a younger generation which is as large, we have a lot of excess requirements going forward for health and benefits. And so they set up a process to essentially do a wealth transfer intergenerational wealth transfer to take care of the other generation and the retirement. And CFPIB was certainly one of those incredibly insightful and long-thinking, long-range thinking in that regard, and have collected assets over the last, I don't know, 15, 20 years to address that. And they're incredibly solid, actually, I think they're well provisioned for the next 75 years. And they take those assets that they gather and they reinvest them.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Be the head of the Quan Equity Research Team. That was the beginning of my equity experience as a researcher in terms of actually doing what I would call forecasting of expected returns. That was a journey that was about eight years long.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Very odd approach, but what's hilarious is that he said, okay, trust me, go walk across the aisle to the head of the global macro team and go ask him about me. Ask him, do you know Bob Shane? I was like, so when I talked to him, this is Ken Croner at the time. He said, oh, yeah, he's a great guy. He helped BGI build from the ground up. So he ended up turning to be legit, thank God. And yeah, so CPPIV was essentially, which is the Canadian pension plan investment board, was recruiting a bunch of talented folks across the world and bringing them on board in Canada to help build their investments internally. And such began the journey. I started on the global macro team, which is a style investment that essentially is betting economy versus economy through the various instruments, Bridgewater Associates is sort of, I think, the pinnacle of global macro investing. Most folks have probably heard of them. So I spent a few years working on the macro team. There were some changes going on on the equity side. And at some point, they reached out and asked me and they said, hey, why don't you come?”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Your daughter's name. I know everything about you. There's this place called CPPIB that's recruiting a lot of talented folks and I hung up on him. Literally, I thought this guy is a soccer. How could you possibly know this?”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Using a quantitative approach. So to me, I think was formative. That was like going and getting my next degree, so to speak, in quantitative asset management. And I work with some of the brightest minds at the time in that space, or trigonal, Ron Khan, Mark Britton-Jones, Maury Wakeet, Ken Conner. These are all sort of names that became pinnacle in their career in quantitative investing until BlackRock acquired them in 2010. And my understanding was BlackRock really was interested in the iShares business, which GI had built along the side of its active investing strategies. And it just turned out, I think, to not be a place for me. It was a different culture, different utility function for the organization at that point. And so I wasn't the only one. There was a natural sort of diaspora, I think, from BGI out of San Francisco at that point. So a recruiter called me out of the middle of nowhere. It's an interesting human being. He basically called me up and he said, hey, I know what you made last year. I know your wife's”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“investment advisory, a great human being. He took me under his wing and started to teach me about the Journal of Finance and quantitative investing. So it included things like Fama French and momentum and things like that. And so that was my first introduction. I spent about four years at Schwab. As I said, helping to build this robo advisory. I got exposed to their schwab equity ratings. Some of you may have seen that. It was pretty clear to me that it was time to move on. And I would say the giant in the industry at that time was out of San Francisco. It was a place called Barclays Global Investors. They pioneered the quantity of investment process literally written the book on it. There's a book by Gerald and Kahn where Barke's Global Investors can talk about at some point perhaps. And primarily they built an incredible business off of quantitative equity world, which was they basically gathered a ton of assets. We'd continue to gather assets over the next six years while I was there. And really one acclimates for performance over that period of time.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“Effectively. So when I showed up in San Francisco, there were only certain numbers of places that were hiring. Remember, it was pretty close to the dot-com bubble. So tech really wasn't the place to go. And it turned out that finance was hiring, in particular Charles Schwab was looking to hire folks with a background similar to mine to help them build, what sensibly turned out to be a robo advisor. And so folks like myself can certainly help with some of the applied math that goes into building such things. Funny story is I don't think it was a success early days, but it was a bit before its time, but Tez, I think, had some success going forward. But the person who hired me was looking specifically for somebody with a PhD with an applied math background. And that was my first entry point into actual finance where I learned about stocks and bonds, which I had no exposure to up until that point. Literally, I'd never invested a penny in my life. And there was one person particular Chabeterson, who he's still there. He's actually the CIO of Charles Schwab.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT
“To the origin story. So that's a PhD, I was interested in applied math, engineering. So that was my first love, which was obviously why you go into a graduate program to begin with. And in particular, I was focusing on something called control theory, which is a set of theories about how you managed to make systems do what you want them to do. So how do you make an aircraft behave the way you want it to do? How do you make SpaceX land vertically on a small ship? So that's all control theory, or Tesla, how it self-drives. So that was my passion. There were certainly, obviously, life never goes in one particular direction. They never ended up in the spot you thought you would. And that was true with me. And so for personal reasons, we had to move close to my wife's family after I graduated. And that turned out to be San Francisco, California. And while I was there, I just basically had to look for a job. So any plans of going on into academia put, by the wayside, and I had to find some place to use my talents and get paid.”
2021-12-24 · We Study Billionaires · TIP407: The Evolution of Quant Investing w/ Jonathan Briggs, Ph.D. · IDENTIFIED FROM THE TRANSCRIPT