Hedge Fund(s) Hammered

[c6ackp]

Jim Simons and his 100+ rocket scientists at Renaissance Capital got completely hammered by the recent sub-prime induced volatility.

One of his funds lost 8.7% MTD.

That's -8.7% in 8 trading days!

That's almost as bad as the T2W charity trading account

There have also been rumours about Goldmans Alpha fund being liquidated.

Perhaps these guys all got into very similar strategies/hedges and all got caught out heading for the exit at the same time...

c6

 

[chump]

I'm going to give you a tip and this is truly priceless..I mean this...priceless...you do not make and keep money (returns above the norm) by doing what is being done by large groups of people and I don't care if they call themselves hedge funds and if they have triple degrees ...by all means do what they do .but don't buy the story for longer than it takes to sell it for a profit.

 

[jacinto]

I'm going to give you a tip and this is truly priceless..I mean this...priceless...you do not make and keep money (returns above the norm) by doing what is being done by large groups of people and I don't care if they call themselves hedge funds and if they have triple degrees ...by all means do what they do .but don't buy the story for longer than it takes to sell it for a profit.

well chump, got to say you always nail the point quite well! abnormal returns are that....abnormal .......

 

[chump]

LOL...I did say it was "priceless" ...I mean would you pay anything for that

 

[counter_violent]

That's -8.7% in 8 trading days!

That's almost as bad as the T2W charity trading account


c6

We look forward to watching some of your tips for the account.


Cheers C V

 

[DDI]

am surprised.. I wouldve thought algorithmic trading wouldve succeeded in this atmosphere provided you take your profit quick. Most if not all divergences had some sort of a rebound and all breakouts had some sort of follow through.

I didnt take any of my signals as I didnt have the balls. but if i had i wouldve had a very good couple of weeks.

 

[chump]

DDI,
"algorithmic trading" ...you would have thought so wouldn't you ? ....you really would have thought all the quant scientists would have been on top....so let's go back to my remark above.....despite the obviousness of it it remains a truism that seems to escape attention.
You multiply hedge funds X times just because they are hedge funds , where there were hundreds there are now thousands and what do you get ? ...well if they share an algorithmic approach because that is now the flavour of the month you get a diminution of returns that would have been possible from it's use. Throw in a few tens of thousands of other funds that are interconnected with many of those Hedge funds many all following the same approach and what do you get...I don't have to spell it out.
Regardless of quant scientists , or cockney barrow boy stereotypes the only approach never superceded is to think strategically different to the norm/mainstream no matter what that entails....this always ensures you don't get caught in the same escape exit as the crowd....underlying this is a different mindset which is why I keep banging the drum that basically it is all in the mind.

 

[DDI]

chump you lost me, I dont follow. Why do you get diminution of return? Please explain in simpler words.

Also I have another question which I'd be grateful if you answered. Whats the difference between Algorithmic trading and Quantitative trading. In the articles I read I get the feeling they are the same but cant be. I have algorithms by simply reading 5 or 6 books on technical trading but quant people need to have PHDs etc....SO what is the difference. Thnx.

 

[chump]

DDI,
They are followoing strictly mathematical models , quantitative or algorithmic we are talking about semantics..because they all assume they can tactically beat other strategic approaches by appying mathematical models....superficially this sounds attractive...BUT it falls on it's face when you start to apply commonsense about how things actually work.
Let me give you a really simple example. I set up a stall outside a ground selling burgers at X each. I do really well as I know my burgers ,what the customer likes and charge just the right amount to optimise my profits. Along comes burger seller no 2, sees how well I am doing and decides he'd like a piece of that. Soon he's set up and doing pretty well. Fortunately there are enough buyers of burgers that even though I am now having to sell marginally cheaper both I and burger seller no 2 are still doing good business making good returns albeit not optimal.
Along comes potential burger seller no3 , that looks easy , and seems to be making good returns,I'll have a piece of that he thinks. He sets up ,but now the number of burger buyers are satiated by choice...each of the burger sellers is going to have fewer burger buyers and their formerly high returns are going to be correspondingly lower (diminshed) by the presence of each new burger seller that appears UNLESS some of them start to do something DIFFERENTLY to regain their competitive advantage.
Hopefully this will explain to you what I meant by diminished returns.
With the funds there are additional problems to consider...that is if you already have 20 burger stalls selling around a ground all doing the same thing and then for whatever reason half of them suddenly wish to sell then on that day they will each be correspondingly worth less than they were worth the day before .The market for buyers of such business has now become 'illiquid'...in other words it's a buyers market.

LOL...funny story for you...I tried to buy a house years ago...made a reasonable approach and the chap in question instead of just saying no thanks was extremely rude to me. I went away and made up 4 for sale signs and put them up on the houses I already owned around him. That was on one day in a street of only 8 houses it went from one for sale to 5 for sale. I wasn't selling and my tenants knew that ,but the seller didn't and his rudeness cost him ! His chances of selling had just nosedived overnight.

 

[jacinto]

LOL...funny story for you...I tried to buy a house years ago...made a reasonable approach and the chap in question instead of just saying no thanks was extremely rude to me. I went away and made up 4 for sale signs and put them up on the houses I already owned around him. That was on one day in a street of only 8 houses it went from one for sale to 5 for sale. I wasn't selling and my tenants knew that ,but the seller didn't and his rudeness cost him ! His chances of selling had just nosedived overnight.

a bit cheeky of you. .......in another type of industry that would be immediately be investigated by any monopoly commission in any civilised country for non-competitive behaviour :cheesy:

 

[chump]

Personally I thought it was rather 'biblical' of me ...cut off the hand that offends me sort of stuff although in this case the hand wasn't exactly mine

In the case of funds I have long thought that most have little ,or no edge and rely on extreme leaverage to multiply that small edge into outperformance...problem with that is when the small edge gets nullified the leaverage then works against you doesn't it.

 

[DDI]

Thank you very much chump for going thru the time to explain. So basically if lets say algo's of most hedgefunds say limit short EURJPY at 165 target 164, both entries and exits wont be optimal due to the pile of orders? so one has to short at 16490 and come out 16410?

But how big are the algo/quant hedge funds relative to the relative financial markets. In commodities its really the physical business that moves them so would an algo/quant trigger really have an impact. Maybe in fx and equities their impact is more I dont know.

Also is quantitative the same as algorithmic?

 

[SAINT]

well chump, got to say you always nail the point quite well! abnormal returns are that....abnormal .......

Well said Jacinto. A brief look at anything of late on a weekly chart (Dow, Eur/jpy, Gbp/jpy...) and you can see examples of gross mispricing and greed which will probably feature in trading books of the future.

Looking at things on a historical basis, and these moves just didn't look right. A mass of liquidity in the market just made things get up to ridiculous levels and therefore the return to rationality will be equally as brutal.

I day traded the FTSE and stocks for a firm this year and had to adapt quickly to the fact that the market was pricing in good news and ignoring bad news.

Somehow, I don't think the media will have as big an issue with this years bonuses : )