YouSaid · the spoken record

Leigh Drogen

lines on the record: 72
first: 2017-06-13
most recent: 2017-06-13
sittings or episodes: 1
sources: podcast

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“Brush my face because one side of my face is like all puffy and everything. So the article is great. The image is ridiculous because one of my eyes, it's like almost closed. So we get the platform out the door and our intern at the time was an incredible engineer, held the thing together for three months. And I find this guy who lives in San Diego where I went to school I met on AngelLists of all places, which we've hired a ton of people from since and it's an incredible platform. I meet Brian and on a whim he flies out to New York for a week and stays with me in my apartment. And we go at this problem. Okay, so we have this platform out the door, but it's like, is this going to work? It's very much just still the experiment. He spends a week and he goes home and he emails me in a deck.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh man. Well, I mean, it's very simple. My co-founder, Brian Smith, I think it's the luckiest thing that ever happened to me was finding him. So a lot of people don't know this. Some people know it, but a lot of people don't know that the first year of this company was just terrible. We did everything we could possibly do wrong. And the company almost died. In fact, there's an article at Business Insider from our launch day in January of 12 where I have shingles because I have not eaten or slept and I'm just like freaking out because we have to get this thing out the door. And I fired my original co-founder, who was a very nice guy, but we just did not work well together at all. And we just barely got the platform out the door. And I was just a wreck, emotionally, mentally, physically. And they had to airbrush.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Shows this kind of. And then you get Apple, which everybody's been kind of on the multiple basis betting against forever because they're like, well, they're not going to sell another set of iPhones this season because eventually, and lo and behold, they sell more iPhones like every quarter and it's incredible.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Even look at the technology. I even think that there's mispricing and disruption risk of the disruptive technology companies. Look at Zynga. So Zynga comes out. It's generating a ton of revenue growth. It's doing really well. And people don't understand that there's another whole set of things behind Zynga that will disrupt Zynga because the innovation cycle in the valley and just in general has sped up so much that business models come in and out of favor within a matter of five years. And so you can't even count on the high growth momentum names continuing to disrupt the old industry because there's one right behind it. That may take a whole new view on what is value. Look at IBM. Good luck getting IBM to like innovate out of this cycle. I just don't see it happening. And that would be a classic value stock right now.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Things that Tesla license is out to you, and they're going to be fixing it. Because how do you fix a Tesla? Good luck figuring that out. So AutoZone's dead eventually, and the question is, what are the inflection points for when to get short this thing? Is it now? Is it later? Is it whatever? And there's a lot of those kind of interesting anecdotes that I have a lot of fun trying to figure out. And then you place all the different market timing aspects on top of that general thesis, and then you got to go build a portfolio. And these are the things that kind of things I nerd out on.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Right now, that's the example that's taking place. But you're going to see this in industrials. You're seeing it kind of in energy right now with what's going on with oil prices. Maybe who knows what oil prices are correlated to. But I think there's massive disruption risk. And I think you're seeing the mispricing of that in the market, both on the upside and the downside. Everything is shifting towards every business is shifting towards technology, and that's going to cause these massive dislocations in industries. One of my favorite shorts right now is auto zone. And for a lot of different reasons, but like, I would, I can't buy any individual names, but I would be buying leaps on this thing because this thing's a zero. Like who can understand how to fix a car these days? It's just massive computer. Not only that, but in like, you know, five or ten years, you're not going to be driving a car. You're going to be rolling around in one of these drives.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“I've written about it for a while. I think there's a mispricing and disruption risk across the board in everything in our economy right now.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Look, our whole space is interesting because I think we're just at the beginning of it, honestly, with the number of data sets that we can crowdsource, which is, you know, that's just simply fun for me, whether it's at STMIS going forward the next 10 years or whether it's in another vehicle or whatever it is, I feel like my career will probably be there. I want to get back at some point to running money because I love it. I just like this discrete period of time and history with stuff changing and the opportunity in my specific industry put me in a position to do these kind of things. But I miss running money. It's just the exercise of it to me is fun and intellectually interesting and emotionally interesting because you have to keep your emotions in check all the time and the emotions associated with running a startup technology company are just completely different across the board. So that's cool. Josh Brown, one of my friends, I think you know well, writes about this.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and then everything just goes back to normal, like everything just goes back to baseline. Yeah, that would be crazy.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“And maybe it all gets compressed 60% or something like that. We're just going to have these very discreet one week periods where Vol goes nuts and everything.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“And intuition is because you're seeing more data sets that allow people to manage risk that allow you to predict what's going on in the individual companies on a Smaller interval, right? Instead of waiting for the earnings report, being surprised, and then having to rejigger expectations, you have less active money in the market, more passive money, so you have less of these behavioral dislocations. All of these things should add up to higher equity valuations because of lower volatility, and you should get a lower volume market in general. There will also be less alpha because that comes from the vol in the dislocations. That's what it seems like right now. I could be completely wrong here. And in like three years, we could just see this massive whipsaw all over the place because some other variable is we're not accounting for here. But it's like, that's what it feels like right now.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, absolutely. It's interesting you bring that up because one of the things I talk about in that piece that I wrote, which is on LinkedIn, is I think one of the reasons that there's just generally less alpha in the market today is because you have less of these just retail investors and you have less. Yeah, I mean, that's the Goldman term for it, and I'm parroting them. You have less muppets in the market, and you have less buy-side muppets too, right? And so if you have less behavioral less bad behavior in the market, will you ever actually get that selling, right? But if everything's passive and nobody panics, will you ever actually get another crash? Or will the market become much less volatile? And I actually, this is a hypothesis that I have that is not in any way backed up by any long data set at all, but it's starting to seem like one of the reasons why you're seeing lower volatility in the market against everybody's better judgment.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Dragging the wrist meter down to zero. Or it was a flash crash kind of thing that had to do with liquidity, but that should be relatively quick. Yeah, that'll be a really interesting way to look at it. Bottoms happen because people sell.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Over three months, and we only saw an outflow of like 1% of our assets or something. And if that happens, we're safe. If everybody takes their money out, we're all completely screwed.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“I've discussed this with John, the CEO over there, and our company also uses them for our 401k, which is an incredible product, by the way. I've discussed this, and he doesn't want to break the glass box. The glass box being they don't want to give all these options because then they don't want to be responsible for your returns because they feel like their responsibilities, your behavior. And this is what I'm actually really interested in in the next crash, do people go in there and against their own good judgment, against their own best interests, do they move that slider to zero? Or can they prevent these people from doing that? And I actually think the dislocation in the market, and obviously like these platforms are a tiny percentage of assets, but the behavior that takes place on these platforms will roughly represent the behavior that takes place in all the passive money. And so the next one will be the canary in the coal mine. And I hope they release some kind of report on the market dropped 20%.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Super simple, right? Like, I would love it if betterment put in just some super simple trend following algos and or allowed me to allocate towards a smart beta, whatever quotations.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm dragging the thing to zero, right? Like, am I going to go in there and drag the thing to zero? Now, personally, like, my whole philosophy on passive investing is that it shouldn't be completely passive. We know that if you use some very easy trend following algorithms with a long only strategy, you can get yourself out of massive drawdowns when basically the index drops below a falling 200-day moving average. Just get out.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm really interested to see, and all of my money personally is in betterment right now. Because one, I'm not allowed to own individual names given what I can see on the back end of our platforms. And two, I literally just, I don't think anybody should trade individual names if they can't put their whole emotional effort towards it because it's such an emotional process, unless you're running a systematic strategy and I just don't have the setup for that. I'm really interested to see what happens to betterment and the behavioral things that they've built into that product during the next crash or whatever.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“There was that Bloomberg article the other day or yesterday that was just like, and they literally timed it out on the current growth rate. When will it be halted? When will it be the whole thing? Which you can't.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Frequency guys are going out. In fact, many of these old high frequency firms like TradeWorks are actually and jump, not jump still makes a ton of money in high frequency, but they're turning into Stat R desks because the guys there know how to do, it's all the same work, basically, just different timeframes. And so I think the market is actually going to have more liquidity. You're going to see less of these dislocations going forward.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, so back to intrinsic versus informational edge, liquidity will always be an intrinsic property of the market. And that will change over time, like what is adding or removing liquidity. I actually think the Statarb guys in many ways add liquidity. If you look at many of the models that they're running, their liquidity takers, and that actually negatively affects their models, but they are. The market makers will shut their things off whenever they can. So the more systematic guys we can put in that are not simply making markets and trying to jump in front of each other, I think the better it'll be for the market and the less of these things you'll get because they tend to shut their things off when things get volatile because they actually make a lot of money when things get volatile. That's what they like, whereas the market makers just don't want to be involved at all. So I think there's a shift going on right now where the high”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“We're just like, you have to, I don't care what's going on, buy it. And that's where limit orders were or buy stop orders. And you know that when it comes back down there, they're going to buy it again because that's where they feel the intrinsic value of the companies are. So that was interesting.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“It was just like a one time thing. I'm like, no. No, no, no. This thing's coming all the way back down, and it eventually does come all the way back down and roughly kind of bottoms out right around where the low point that day. Many of the other stocks, which had just massive liquidity issues that day, didn't eventually come all the way down, but the index did. And it was just really interesting because I remember on that day, I'm like, I'm going to get to confirm a thesis that I was taught years ago over the next couple of months. I'm pretty sure that he's going to be right. And lo and behold, like, absolutely correct. These things always retest. And it's because that's where support was. Fundamentally, that's where fidelity, the CIO ran to the PMs that day and he's just like at that level, you have to buy everything no matter what it is, just buy it. And it's not like the random person, like the random retail trader out there. It's like Fidelity in Wellington and those massive long-on-only funds.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“See the market leaking, leaking, leaking, all the distributive signs were there. Like the market was in distribution. Things was going back and forth for a while. The volume on the downside was much higher than the volume on the upside. It didn't look good. And you could tell like something was going on. And then you come in that morning and just there's no bids. And it was incredible just watching this thing drop and drive. And the whole office, like we got no work on that day. And we have nothing to do with the market. We weren't allowed to own any stocks at the time in our personal accounts. And the thing just keeps leaking and all of a sudden just gives way. The thing that I remember is one of the lessons that my mentor, the first PM that I worked for, taught me is when something crashes, it always retests. Always retests the bottom. And so the thing ends up bouncing over the next couple of days. Everybody's like, oh, okay.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“So I was actually working at Stock Twits at the time. So, my career went from working as a PM to running my own small fund at the same time that Stocktwist was getting built. I was running product and then VizDev over there. And then I eventually put the fund down and started STMize. I remember sitting at my desk. And I just remember the couple of days before.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think factors are the better word. So people call it like smart beta. Nothing is smart beta, right? This is all just factor investing.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“You have to, we look at it as there are intrinsic properties and there are properties that come about because of informational edge. Value, momentum, growth, these are intrinsic properties of the market and they will never go away. They will come in and out of fashion. And I think the difference is one is behavioral and the other is informational. And they can change. They can move back and forth sometimes. But some of these have been around forever. In fact, at this point, we just call, I mean, pharma friends, these are betas. And so stuff moves from alpha to beta. And I guess one of the questions that's going on in the industry right now is, is beta levering alpha if you get it right? And I think there's a big debate going on right now because 90-something percent of people have just been leveraging beta. And if you can do that at the right time.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“That is exactly it, yeah, for sure. And then they can manage risk around those positions at different times during the quarter. So the systematic algos will do this. So some of our models will only be used in the couple weeks before and week after earnings. But the majority of these factors that the systematic quants use, they need to work on a regular basis. But man, I mean, if a discretionary guy has a factor that only works in the post earnings drift, right? And he sees that that thing is like bright green. Well, I don't know, go overweight your position by a lot, right? Like for that one stock. And you can do that because you don't have 500 positions on. You might have 40 and you can pay attention to each one and all the signals coming out of it.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Farmer French fractors. So I think the discretionary guys do have the time because they're mostly operating in one specific sector normally, or maybe a couple of sectors, tech and consumer or stuff like that, energy materials, utilities. And so they can use the expertise of the analyst and the PM to understand, well, I know that industrials operate off of peak earnings, so I'm not going to run a post earnings drift model on this thing, even if I have a factor that says that. Or I'm going to go create factors that research specifically on variables that I have an ex-ante hypothesis for that are strong. And I think they can, in their niches, over time, they can beat the systematic quants because the systematic quants are hitting for singles and they can hit for doubles and triples on a regular basis instead.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“As well, but our factor model doesn't do that. It puts it on a z-score across everything. And so what we could do is say, well, deweight the algorithm in the industrial sector or the utility sector, which also doesn't really matter, so that you're not using that signal as much in your z-score. So you're not going to put those into your portfolio on either direction. They may just fall out right in the middle and you'll never actually use those scores. This is a really good example of how as a pure quant, it's very hard to normalize for all those given little characteristics that you need the industry expertise to understand what are the variables impacting whether a model will work or not because most quants need to trade across S&P 500, Russell 1000, Russell 3000, like whatever it is. And they don't literally have the time to go in there and cherry-pick the variables that you de-weight or overweight for certain sectors, industries, or other.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“With a machine can beat another machine. And the reason is because the basis of a linear algorithm is to figure out how to fit something to an entire universe of stocks. And we know that not every stock in every market cap and every sector performs the same way relative to a given data set. And so I'll take something that we do specifically. So the post earnings drift model, which we have a factor model for, is basically if a company beats their SMEs consensus number by a significant amount, which is relatively normalized to the average variance in beat size, we find that over the following three days after the earnings report, it will drift in the direction of that beater miss. But the thing is that not all sectors perform the same way. So like industrials don't care about the earnings report really because they operate off of peak earnings. They don't operate off of like what's the next quarter or even the next year. And so we know that in the industrial sector, the model doesn't work.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and we're actually at SMIS up against this attempting to make this shift ourselves, actually, from being purely quantitative to that mix and takes more experience, it takes more industry expertise. So the basic premise of this actually comes out of a really good example that happened the other day where the AlphaGo team from Google that produced this incredible machine learning artificial intelligence, very nonlinear algorithm to play the game go, has been crushing every human for like a year now. And nobody can touch the damn thing. But they recently gave AlphaGo to like a mediocre Go player and put it up against AlphaGo. And the mediocre Go player crushed the AlphaGo algorithm in and of itself. I think this is interesting and useful anecdote because it shows that a human”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's table steaks at this point. And I actually have, I question how much value the discretionary guys are actually getting out of it, though, because I feel like it's funny. Like, you talk to one firm and they're making a different inference on the stock based on the credit card data than another firm is making, which means none of them are actually doing science. They're all just kind of saying like, well, the credit card data for Chipotle is going in this direction, so I'm going to trade in that direction. The other firm's doing the exact opposite thing. So yeah, is there any efficacy to it? I don't know. So the credit card is like table stakes at this point. The location data is really cool.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“It and there's this company called Orbital Insight that just raised an enormous amount of money, mostly because they're selling a lot of stuff to the government, but they're also selling stuff to hedge funds. And look, if you can figure out where the levels of inventory for every oil, storage tank in the world is, you should be able to do better. So that one's pretty cool, but it's going to be difficult to parse it. And I've talked to a bunch of these quant funds that are trying, and they're moving slowly. And the universe of things you can use it on is not incredibly large. The location data is just.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and Dimitri's right on. It's actually hilarious. So, ballizing, I can mention this publicly because they allow us to, they're clients of ours. And I was floored when Dimitri, in a meeting, said, make sure you directly tell me about anything because he realizes like he totally gets all of this. And normally, like, the CIO of a massive whatever billion dollar fund would not be like you data company guy make sure you email me directly instead of going through my my CTO Sankat or somebody else. So he's right on the ball. Data sets that are really interesting today. So some data sets are directly derived and some of them are derivative of other stuff. I really think that the satellite data is interesting from a lot of different levels, mostly because it's so hard to use. But if you can use it well, it's so valuable. And many people won't be able to use it well because it's really hard to normalize.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Do I have to go buy this Crypt So I actually find this really interesting, and it's awesome that I learned this today. The idea behind not to get too deep into it, obviously, but Bitcoin is like there's an amount of work that gets done to verify the ledger. So I guess this is the work. So the work is, did you produce an algorithm that is correlated to outcomes, good outcomes, right? That's really interesting.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“No, no. It's actually interesting because that corresponds a bit to the way that we run Force Rank, right? Yep. It doesn't matter how much more accurate you are with your rankings. It just matters that your rankings are correct. I don't care if your number one stock went up 20% and the number two stock only went up 10 just as long as you got them in the right order. And if you get them in the right order, supposedly over time, and this is the case with this, doesn't have to be, is that if you get enough of these right, the returns will work out correctly if you have the yes or no. But it doesn't have to.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Go even further than World Quant in crowdsourcing and disrupting the whole idea of, okay, they built this massive infrastructure platform that they just put on the web instead of keeping proprietary and allowed anybody to go in there and run regressions and build quantitative models. And then they built a hedge fund on top of it that 0.72 invested in, where if you run your model out of sample for six months and it works out really well, they may pick it out of the bucket, put money towards it, and give you a percentage of the returns or something like that. I don't know exactly how it's set up with how you get compensated, but that's really interesting. That can scale incredibly large. And then this Numerai thing, I honestly, like I've met the guy a couple of times. I think he's super interesting. He was at the conference in London that I was talking about before Richard.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's a really, well, so I can't even really describe accurately what Numerai is. I don't think many people can, frankly. WorldQuant, I think, is the, yeah, I mean, I think they got it right. And it was a crazy idea. Let's hire 500 people in India and Hanoi and all around the world. Some of these guys are like rice farmers that had a mechanical engineering degree. It's incredible, but it's very much along the lines of our philosophy, which is crowdsource all this stuff, pick the best out of the haystack, and go with that. And if you have enough people giving you models, then you'll find the models that work. I don't think many firms can engineer what they've done. It's a difficult thing. And there's a data procurement thing that feeds the heart of that engine that is just incredible. It's a machine. There's another company called Quantopian that I think is really interesting run by a friend of mine, John Fawcett, which basically attempts to”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“This and he's like, The PMs don't know what's actually in the alphas that the analysts put into this bucket that the PMs just pick out and create a portfolio out of. It's an incredible way to do it because it's like infinitely scalable, and which is why they've been so successful. So there's a lot of different ways to kind of set up the firm. What's changing now, I think, is Millennium is now realizing they have to build an infrastructure to get more people onto their platform and support them. So they're building a big data thing to support people. They're bringing in new data sets. You're seeing discretionary firms attempt to build these overarching kind of infrastructures as well. But it's moving slowly on the discretionary side. I think there's still, people are trying to figure out which steps to take before they start running. And some of them have taken some false steps forward.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Or Paloma, which runs pods of quants that are all separate, but the firms will give some kind of resources to those pods. And then you've got the third kind, which is the most recent, which I think is really interesting, which is World Quant. And WorldQuant is unique amongst the entire industry where they decided they're going to have a centralized risk management and portfolio management team, and they're going to centralize the data purchase and infrastructure part. But then all the analysis and alpha generation is going to be done by a group of like 500 analysts all around the world that they basically contract to do this. And it's incredible. WorldQuan was one of our first customers, and I can actually say this publicly because they allow us to, and they use our data. I went to their conference in Puerto Rico a couple years ago, and I'm walking around and meeting all these people. And all the analysts know about our data set. And then I meet some of the PMs, and they're like, never heard of you. And I ask the head of data over there, I was like, what's up?”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, they're shifting a lot right now. So let's just take Millennium, for example. Historically was known as a hedge fund hotel where they gave you some technology and basically said here's some cash. We're going to manage risk on you like really tight if you have one bad, terrible quarter. Like you're out. But you have to go do all your own research. You have to buy all your own data. You have to do all your own stuff. So that's how it kind of used to be. Then you had firms that were more kind of like one book or discretionary firms that were tighter together. And they would buy data and have an infrastructure and have a process all together. And then you had kind of the quant firms are very much the same way. You've got a firm like AQR, which is just one research team that runs a whole bunch of different portfolios, both short-term and long-term stuff. And you have teams like Bally Asny, which runs pods of”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Insight on Apple stock or something from The point 72 guys, Matthew Grenad, who runs their big data group, likes to call it systemental, which I actually think is the best term for it, frankly. It just sounds weird.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's a good problem to have. So I will say we are still on the upward sloping part of that curve where there's more alpha today than there was yesterday. How long that lasts? I can't say. Maybe it's another four or five years. Then the value in the data set starts to come down and that company has to go through if they want to instead of selling. And a lot of these data companies get to like $15,000, $20 million in revenue a year, and then they sell because it's hard to get past that. The reason being you have to go through this trough. And the trough can take years to get through. But if you get through that trough and out the other side, you become a must-have arbitrage data set that becomes table stakes, and that's where IBIS is. And that's where a data set like the short interest data set that market owns now called, and I'm forgetting the name, that is, it's table stakes to have that data set, the short interest stuff. And if you can get through that trough, you can become a hundred.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Ask how many clients do you have and all that stuff? Because they're trying to figure out where we are. As a data set gathers more data and becomes more useful, it has more and more alpha. And then at some point, there's this crest where enough people are using it that the alpha kind of tops out. And then you go down that.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I like to. We obviously get asked this question at basically every meeting. Some data sets have obviously different capacities than others. So that car insurance stuff, it's just operating on cars. And there's like a small set of companies. And certainly that thing will be armed out within a couple of years. IBIS, the earnings estimate data set took and still is not arbed out completely, but it took like 30 years to ARB. Ours should go faster than that, but is it 15 years? Is it 20 years? Is it 10 years? It'll happen eventually if we're successful enough at distributing our data everywhere. Now, it's interesting. Companies, and I think traders and investors should know what they're using in this frame when they look at a data set. Where is that company in the progression of that distribution model, which is why we always get it?”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“I have a good friend that runs a company called Riorg Research, and his whole company is predicated on having these people in the distressed debt courts, like when they do the filings, right? And then they have this product that pushes out a feed of this stuff. And this dude went from $0 to $10 million in revenue in his business in like a couple years. It was incredible how fast this company grew. And it's, yeah, there will always be new data sets. And there will always be new heuristics and inefficiencies that the humans operate on relative to the data sets and the bad decisions that they make with the information available.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's like, are we all not going to have jobs? No, we're going to have jobs. Like, there's going to be jobs. We're not all going to get put out of work. And there's always going to be another data set.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“These kind of data sets are coming out all the time, especially with location. You've got all these apps now. And this is crazy. And a lot of people don't know this. It's just one of those things that data nerds are getting into now. So there are these companies that basically have an SDK that they will put into all these different apps and they will pay the app to put the SDK into the app. And I'm talking like thousands and hundreds of thousands of apps. And so the likelihood that you have one of these apps on your phone is very, very high. And what this SDK does is it sends your location data back to this one company. And they now have a large enough panel of everybody to know how many people are walking into urban outfitters every month or whatever. And it's just we're getting to the point where the data is outstripping the ability for funds to actually just do the science.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, look, everybody's just like running to catch up to each other at this point. So I was at a conference in London back in March, and one of these data sets that's up there, it actually wasn't presented by the company itself, it was presented by Tamar from Quandle being one of these platforms that has a whole bunch of data sets that you can buy. And they have this data set where they're getting the new insurance registrations on a daily basis for all cars in the US from this one insurer. And this one insurer has a big enough panel that they represent a good enough sample of how many cars are being sold. And so now you go from getting the car sales number once a quarter or once a month or something like that from the companies themselves to having a daily look at how many cars are sold. Well, I mean, if you're a car analyst or you're trading cars, like if you don't have this data set now, you're screwed. And there's these.”
2017-06-13 · Invest Like the Best · Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41] · IDENTIFIED FROM THE TRANSCRIPT · source