YouSaid · the spoken record

Matthew Rothman

lines on the record: 85
first: 2017-09-21
most recent: 2017-09-21
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

“Eight o'clock in the morning and publish that note. I remember walking back from the San Francisco office after I had hit the send button on that note and knowing that I had done, it was almost like the Jerry Maguire moment, like when you put that out there, kind of saying like, oh my God, what have I just hit the send button on and woke up to the most red note in really the history of Wall Street?”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“There until they kicked us out. And we kind of exactly have the story. We couldn't prove it, but it all made sense and kind of got the story. And then I went back to my hotel room and realized that the rest of the trip that I was planning in California was out the window. What I needed to do was write this all up. And so that next morning I called and told all my salespeople, cancel my trip, cancel all my client meetings. This is, you know, I'm going into the San Francisco office and we're writing this note as our quant world is melting down. And stayed up until literally, I mean, I got there at, you know,”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“We're putting this literally together over a three to four hour dinner of sushi in a restaurant in California with some sake. And you close the joint.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“That's right. Things that you have exposure to. And so that's how that is the definition of contagion, right? Where something that you're not actually exposed to begins to affect another part of the market.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“If any at all, right? It's a liquid portfolio. Now, what is the most liquid assets in the world? Probably U.S. large cap. Equities. So if you're a multistrat firm, where are you going to go raise that equity? You're going to go liquidate many of these requirements. You're going to go liquidate your quant portfolio. And we saw that if you go back and look at the data, that a lot of the quants were losing money throughout most of July. A well-known quant manager has come out and said, like, we lost money 21 out of the 22 days in July, but it was just a kind of steady trickle. Like it wasn't really bad. But then it really started to pick up momentum, as it were, in August. And people started, and we really think it's because the liquidations and the margin calls became much more severe. And other people were noticing that their portfolios were misbehaving. And so they started to take down, who didn't have any exposure necessarily to these subprime assets, they saw their quant portfolio.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Insurance. Sounds like exactly. And so the last, if so, if you're smart and you realize this, you're not going to, if you to meet the margin call, you're not going to sell that asset. You're going to go sell a very highly liquid asset.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Discount to market, but when you try to move that, the mark's going to get set lower as you try to sell an illiquid asset, right? For that, you know, it's going to be marked lower than the whole portfolio gets marked lower. You're going to need to raise more collateral for the discount of the underlying assets. Sounds like.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Not a great combination. And the last thing you want to do if you're holding that portfolio is actually liquidate those assets because the marks aren't probably really at market.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“That started wobbling, right? And in mid-July, you saw a number of other distress credit market was in distress. And it was illiquid, and people were beginning to receive margin calls on those books. They were highly levered and prime brokers and others were coming to people who held those assets and said, we need more collaterals to support those books.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so the story that we kind of came up with and still holds up to this day. We can't prove it, but no one has a better story. And it's kind of become accepted wisdom, is that there were a number of multistrative hedge funds that held positions in subprime mortgages and fixed income mortgages of low credit that were taking losses. This was in the summer of 2007, where you had the managers at Bear Stearns who were running those fixed income portfolios.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“A place called Menta Capital. He's still there. And he used to run BGI's hedge fund, you know, main hedge fund over there, and he had started on his own. And I'd been out that day seeing clients and watching the blow up happening. And we both were just sitting there over sushi and just kind of piecing together what would have caused everyone to unwind. And it was literally...”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Sushi. It was a sushi dinner. I've always felt badly that Ozra Levine to his friends just known as Uzi, you know, he really should have been the co-author with me on that paper and deserves every bit of credit. Where was he working at the time?”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I was certainly emotional. I don't want to say that that wasn't a very emotional night for me. You know, one of the things that I think behavioral economists and other people tell you is that the closer you are to a situation, the harder it is for you to kind of take that step back rationally and see what's going on. A lot of Lehman management had lived through 94 and had lived through other crises and really were very, very, very close. I was relatively new at Lehman. So kind of had a little different perspective. You had more objectivity than I did than they did about the situation. I think that was part of the difference. And just being kind of a little just more unsentimental.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Business school white paper Our very foundation is under assault. I could just picture the C suite response to that. Who is this egghead sending me a white paper? Except saying 99% of these people do this. You're scaring me. I was lucky my boss was a PhD from the University of Chicago as well. He appreciated this kind of thing. Kind of rolled out a little? He got it. And I think I don't want to say we stopped fighting with him, but we did stop fighting with him. And I think we did start to concentrate on different things. We had some very talented bright people there.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Like stop, right? You know, and he documents some of these, and they're great anecdotes in there. And if you remember towards the end of Lehman Brothers, management got into a fight with one of our, with David Einhorn, I believe. And when I, yes, it was contested. And I did send that paper along to senior people. And just picture some, wait, this guy.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“There were times that there were things going on that disturbed me. I'll give you a little anecdote. There's a great paper by a professor, Owen Lamont at the Harvard Business School and used to be at the University of Chicago. And he did a study that found that firms who get into fights with their short sellers like 99% of the time those firms end up going bankrupt. Right, they're in trouble if you're in trouble. If you got nothing else to do but fight with the shorts.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“But across the board. But across the board, a misunderstanding of risk. And it's very hard to know when the music is going to stop, as it were, when successful businesses have run their course. If you remember nine months back, Lehman Brothers was putting up record earnings. And so how do you know that it's time to get out of that business? It's a really hard call to make.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“See in the specifics. He got access to it and got people talking that's really quite remarkable. I think that there was definitely some level of mismanagement at the top as he documents. Not just”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, I think the great place to start is Andrew Ross Sorkin's book, Too Big to Fail. If you're really interested in kind of the inner workings of Lehman during that time, he nailed it. It's a great read. I couldn't put it down. My wife kept nudging me like, put the book down. You've lived this. Like, why do you have to read this? And I was like, oh no, he's got details in here that some of us were trying to find out. There's a huge amount of research”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“It's one of the criticisms that get leveled at quant that infuriates me the most. You never hear people say that to fundamental analysts, right? You're all listening to the same press conference. You're all reading the same earnings report. You're all talking to the same investor relations person. So therefore you must all be the same. So I think it's one of those great misunderstandings about quant is that just because you look at the same data or studied under Gene Fama, you must all be the same. And let me kind of give you an example of how even quants can be different, even though on the outside they may look the same. So quants not surprisingly like to buy cheap things and the hope that they'll go up in value. I really don't know any investor who likes to buy expensive things and think that it's going to go down in value. Momentum investors are willing to buy high, but sell higher, but I don't know anyone who wants to buy high and sell low. No, right? Not a great strategy.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Still within relatively traditional framework, but begin to really push that envelope, kind of doing simple screening was no longer enough.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“So Qump 1.0 really ended, I think, in the summer of August 2007, where there were rather simplistic strategies that a lot of people were using. And we turned on the light in the room and saw everyone else who was there and realized that we needed to do things to diversify ourselves from each other. And so we've seen that really over the past eight to nine years where people really started to think in different ways, not even so much about forecasting returns because I don't think we were all that similar there, but really about how we access liquidity in the market, how we optimize our portfolios, how we thought about risk, how we put factors together. Could we time factors? Could we not time factors? How you incorporate macro information into your forecasts? And so people really started to break the paradigm in A lot of ways”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't think that you can do this on the cheap, but you need a relatively well-sized staff, but we're not going to be Rentec. We don't think that we don't need that size staff. 300 PhDs. No, no, no, no, no, no, no. I think you need a staff of probably five to seven good researchers to be able to produce something interesting. You need a technology team of three to four people. You need a data team of probably another two to three people to really four people to really kind of begin to curate what you're doing. So it's not crazy in any sense, but you can be very productive and produce really interesting research on the sell side with that size team.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“It is definitely a serious commitment by Credit Suisse. And they understand that much of the world is really moving this way. And from the firm's perspective, what I believe they understand is that we need to be able to deliver content to those firms that you're mentioning that is interesting to them. The way we deliver fundamental research to the biggest asset managers in the world out there, we need to deliver quantitative research along those same domains. And so, yes, it's a big ask if you're going to be additive to those people's process and play with them in the sandbox.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“I say you probably got to give me 12 to 18 months and think that I'm going to be in a dark cave, and you're going to see nothing from me and I'm going to be asking you for big checks and hiring people and kind of lay out a business plan very carefully and can detail the costs and exactly what I need. And you've got to make sure that they're in it and get the ask because it's a heavy ask. But what you can get out of it is pretty cool at the end of the day.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“You're hiring programmers, you have to hire data scientists, people who are going to really, it's an overused term, but people are going to really understand how to manage and curate and store your data. And then you have to find researchers who know what to really do with that data and where to find those hidden gems of signals and come up with ideas. And then you actually need people who can communicate it.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the first thing that you need if you're going to be a quant is a combination of data and technology. So you need to kind of go out and figure out what are the big databases that you need, where are you going to get your information, and what is your diversified information set going to be, what you think your edge is, and go about procuring that.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“And say on a risk adjusted basis, can I beat the market? And then academics have debated for years what is the appropriate measure of risk? Is it the capital asset pricing model? Is it the Fama French three-factor model? Is there something else that we're missing? There's now Carhartt's factor on momentum that is put in there. But academics have then debated, are those factors anomalies?”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I think the EMH is probably one of the most misunderstood concepts in finance. And Gene Fama's genius was that he really... Taught us how to think in a very rigorous way about what it means to be an efficient market and what it means to beat the market. Before pharma came along, there were people publishing studies all the time that said they had a strategy to beat the market. I think that drove Fama a little crazy because the work wasn't very well done and the phrase beat the market. Was very loosely applied. And what Fama really kind of taught us was that you have to think about risk.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't try to do any of those things necessarily. They try to just forecast returns directly and see what can be those drivers of those returns. And overall, for the most part, think about large baskets of returns or of stocks and how those characteristics and how those stocks behave based upon their return-based characteristics.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“Or does it work? I think everybody crunches numbers. I wouldn't want to say the fundamentalists don't tell a story. They're certainly trying to forecast cash flows and understand what are the drivers of earnings and revenues. And then finally, relate that back to a stock price and what they think the appropriate stock price would be.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“They forecast earnings at the end of the day and they think about a company as an organic unit. Quants think about returns and what are the drivers of returns? What is going to make two returns, two stocks tick the same way or go the opposite way over a long period of time or baskets of returns? And so we think about what drives returns more than anything and really abstract away from the companies themselves.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“If you take equity quants just for a second, they also kind of come at a variety of forecasting horizons. And so they'll look at different types of signals and different types of things. So you have people who are playing literally in the millisecond range doing kind of high frequency trading, very high frequency trading, market making. Literally in tradings hundreds of times in the blink of an eye down to people who are holding intraday strategies to people who are holding several day strategies to people holding strategies that last months. And so you can think about them having very different types of signals and very different types of performance. But what they all have in common is that they're forecasting returns. And what separates a quant, in my book, really from a fundamental manager is that fundamental managers really try to understand the drivers behind the company. They talk to management. They think about products.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“You should begin to think about them via asset classes, so derivatives-based quants are very different than fixed income, general fixed income versus kind of equity quants versus risk modeling quants. And each one will come with a different kind of skill set and a different kind of approach to modeling.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source
“So much gets grouped under the kind of rubric of quant today that you really kind of have to start to decompose it a little bit. And there are a variety of different quants.”
2017-09-21 · Masters in Business · Matthew Rothman · IDENTIFIED FROM THE TRANSCRIPT · source