Paul

"When we try to pick out anything by itself, we find it hitched to everything else in the Universe." - John Muir, Mountaineer It's one thing to build models and share insights about specific players in the trading and asset management universe. It's an entirely different thing to perform comparative analysis of that specific modeling to develop various rankings of a community of players. This latter point is precisely where the accumulation of Alphacution's modeling and research is now taking us, and that new level of insight is, frankly, a bit mindblowing. Our previous Feed post that illuminated an apparent anomaly with Jane Street's stock selection strategy was one of our first examples. For this one, we look at a ranking of average stock positions by shares for a selection of leading quant hedge fund managers, market makers and proprietary trading firms.  Now, what's truly fascinating here is if you consider these players in order of average stock position (by shares) you realize that what you are simultaneously looking at [...]

“Efficient market theory is correct in that there are no gross inefficiencies, but we look at anomalies that may be small in size and brief in time.” - Jim Simons, Founder, Renaissance Technologies Somewhere along the serendipitous journey, I had the good fortune to spend a flash of time with Jim Simons and a few key members of his team at Renaissance - see Jim Simons, Godfather of the Quants: Hiding in Plain Sight. He is certainly one of the great minds of the modern financial markets era - even if he might confess himself to be as or more lucky than smart - and among a short list of the most successful pioneers of the quantitative trading revolution. Now, one of the most amazing aspects about being in the presence of great minds is that they can shed significant pearls of wisdom so effortlessly, as if in passing. There's no drum roll or squadron of trumpets that precedes the statement of insight. It simply comes out - mixed with [...]

"The real voyage of discovery consists not in seeking new landscapes but in having new eyes." - Marcel Proust Here's a quickie that's likely to raise a few eyebrows, if you're looking through the right lens: One of the greatest dividends that's just now starting to come from Alphacution's expanding library of models is the one that results from comparing a bunch of legendary trading firms with one another. In this case, what we are able to do is use the aggregate value of product class exposures along with total product class positions through time to determine the weighted average implied price of that product class. The obvious product class to look at in this way first is cash equities. In the chart below, Alphacution presents the various time series' of average implied stock prices for each of a selection of some of the most legendary trading firms and hedge funds of all time, including our latest modeling on D. E. Shaw, Bridgewater, Susquehanna, Citadel, Millennium and Renaissance Technologies. Here, [...]

“Generations of human beings were transformed into machines in the relentless pursuit of material wealth: We lived to work.”  - Jeremy Rifkin, The Third Industrial Revolution Founded in 1988 by former Columbia University computer science professor, David Shaw, above a bookstore in New York's Union Square, The DE Shaw Group is now reported to manage over $50 billion in assets. LCH Investments ranks it as the fourth-highest grossing hedge fund group of all time; among the ranks of the likes of Soros, Bridgewater, and Citadel. It is for reasons like these - and many others - that we have been eager to add comprehensive modeling of the available regulatory data for the main reporting entity, D. E. Shaw & Co., Inc., to our expanding library, and moreover, to our evolving understanding of the global market ecosystem. And, like most - maybe all - of the legendary players, this one is worthy of a deeper case study. We will get there in time. For now, the following are a few highlights [...]

"I don't want to sell anything, buy anything, or process anything as a career. I don't want to sell anything bought or processed, or buy anything sold or processed, or process anything sold, bought, or processed, or repair anything sold, bought, or processed." - John Cusack as Lloyd Dobler, "Say Anything" Few others have captured our attention here at Alphacution like Deutsche Bank (DB). This phenomenon comes as a result of the collision of two facts: 1) a bulge bracket bank in an ongoing state of radical transformation which 2) has simultaneously provided a consistent level of financial and operational transparency to fuel one of Alphacution's most detailed and illuminating sell-side models. This model - along with our vision of the evolving landscape - has supported the production of a series of content along two inter-related themes: technical infrastructure outsourcing and the strategic communications around headcount shrinkage. Links to each of our DB articles can be found below, and now that some of our predictions are mostly in the rearview mirror, they may prove a more interesting read today than when they [...]

"My favorite things in life don't cost any money. It's really clear that the most precious resource we all have is time." - Steve Jobs If you happen to be reading this note while occupying a seat at a firm like Wolverine Trading or Peak6 or D. E. Shaw or AQR or any number of other mythological market creatures that we have yet to model, please don't fret. We will get to you soon enough... For now, we are going to leverage some recent modeling on Simplex Trading - a name not as well known (yet) as some of the others - to reinforce our plot (just in case some of you have lost sight of it in all of the numbers, vernacular, and other perceived complexities) and try to teach you something new about the market ecosystem we are all playing in or otherwise indirectly tethered to. The plot here is reminiscent of the DaVinci quote we use with extreme redundancy for effect: "Learn how to see. Realize that everything [...]

“Any fact becomes important when it's connected to another.” - Umberto Eco, Foucault's Pendulum It is always fascinating to experience the fleeting juxtaposition of data and mythology. Before, there is only mythology, where almost anything is possible. And then, data enters the picture and for a brief moment they coexist until mythology dissipates and is forever changed. Students of this game are often aware of the lists of notable proprietary trading firms and other secretive trading entities, but there is rarely, if ever, any basis upon which to rank them other than the superlatives that tend to be associated with their founders and perhaps a guesstimate of headcount swagged from LinkedIn. Anyway, we just had such an experience with the development of a new model on Hudson River Trading (HRT), a noted highly-automated trading shop. In the absence of data - and pictures formed by data - we really only had mythology to go by. Now we have less mythology... So, let's add a few more pieces to solve our puzzle [...]

"Design is not just what it looks like and feels like. Design is how it works." - Steve Jobs In the lead up to the publication of our next case study on legendary derivatives trading powerhouse Susquehanna International Group (SIG), I wanted to provide context on how the proverbial sausage is actually made: Maybe it is true of most firms across most industries, but what we have found in the trading business is that companies tend to become more complex as they mature, particularly if they have enjoyed outsized success. Whether incubated internally or bolted on from the outside, the portfolio of legal entities tends to expand - although not always in linear fashion - as these firms grow and diversify their strategy mix (which in many cases is accompanied with a parallel expansion of legal entities). And, while we expect to discover new levels of complexity when we get to the point of modeling some of the sell-side entities most relevant to the global markets ecosystem - with Goldman [...]