Renaissance Technologies Medallion Fund (Jim Simons)

[@FinanceOptimum]

Nicely done - the GOAT of hedge funds. They automated their data processing and feature extraction pipeline end to end such that they are able to rapidly back test strategies. They also have arbitrage in the order book with market making (this was revealed in a lawsuit between former employees). Also using basket options with Deutsche and Barclays saved them $6.8bn in taxes over a 15 year period. Overall Simons is just a genius. [Also worth noting that they were losing money very early on and had to close the fund to have a 6 month 'study period'. After that, they were off to the races!]

[@BenFelixCSI]

Those are interesting details!

[@vixcentral]

If you ask the IRS, basket options allow trading firms to convert short-term capital gains into long-term capital gains. If you ask ANYONE in the industry, basket options allows them to get cheaper financing for their positions, with less risk to its investors, and the associated tax savings are legitimate because it really is earning long-term capital gains. So in the end, Rentech will win this case.

[@tuathadedanann195]

They were fined $7b for tax evasion. Also note that Simons had no input into the quant strategies run by Rentech and in fact his personal trading track record prior to this wasn't anything special. They pay the lowest fees on the street and therefore can capture opportunites other people cannot. According to ex employees they use HMM and single input single output regression against basically everything they can and in every market they can with class leading execution and back testing. Low drawdown and short hold times (up to days) from this enables them to lever high to 30% annual volatilty while still retaining short small drawdowns. You can get better numbers by far in hft. Optiver didnt have a down day for years.

[@Brownman105]

​@@tuathadedanann195 question is, with millions could you and other smart people like you can do what he has done? If yes contact me

[@Brownman105]

​@@tuathadedanann195question is, with millions could you and other smart people like you can do what he has done? If yes contact me

[@momoneylessproblems9183]

This guy has led one of the most uniquely successful and interestign lives of the twentieth century. He graduated from some of the most prestigious universities in the world while still in his youth. Headed an entire mathematics department. Became a code-breaker for the governent. Won the Nobel Prize equivalent in mathetmatics. Then proceeds to become the single most successful trader/investor of all time and originated what we now know as quant trading (which is becoming the standard trading approach across Wall Street). And now he's a one of the richest men on the face of the planet

[@tonynunez6539]

He said he gave most of his money away or he would be the richest by far.

[@entropica]

I came across Ben's channel by chance. This episode is the most concise and correct description of Simons and Renaissance I have seen on the Internet so far. An engineering degree seems to work miracles here. Excellent.

[@TheDWZemke]

I truely digested the book.. great story. All you need is luck, access to mega data, capitial money, a staff that is super smart, works 18+ hrs a day and works well with others/ stays with the firm for years. Oh ya.. when mistakes happen in the code, you can find it before it takes the entire group down.

[@felixotieno1749]

Well put

Ben "cannot be understated" Felix.

[@edwardmauer7442]

Correct me if I'm wrong, but it seems to me they were more "trading" rather than "investing". But perhaps the distinction is irrelevant to an EMH model.

[@guillermogutierrez-santana4446]

They're totally trading and they know that, which is why they fix the size of the fund at $10 billion, which is 10% of Berkshire Hathaway's *Cash Reserves*. They only make these insane returns because they're the perfect size to not destroy their own strategies by influencing the market too much. Whereas every decision Buffet makes influences the rest of the market, he must actually value invest.

[@aliencitizen1670]

I think that's right. If im not mistaken their computers run on advanced algorithms that detect trends in the market and past data to predict future moves based on what's happening. They keep their funds small enough to jump in and out of markets in as little as fractions of seconds without causing price swings. If I remember correctly one or two of their workers tried to take the software and recreate it in another fund but were unsuccessful.

[@DaviMourao]

@@aliencitizen1670 I don't think their former employees can run other funds or work in the financial market at all. If I'm not mistaken they all sign forever NDAs and non compete. So they either retire or move to a complete different field (usually academia, since they're all PHDs). They are more successful in protecting than secrets than many government agencies...

[@aliencitizen1670]

@@DaviMourao If they do sign NDAs then it was because of that incident. He or they were Russian if I remember correctly. I forgot what book I read it in.

[@vaporeum8383]

Hey Ben, just got started with investing after watching your videos. My whole life I thought the only people who made consistent money were billionaires. But now I've got 85% of my savings in index funds and I'm ready to hold! It's not a lot today, but when I retire in 45 years, it'll be quite the sum.

[@michaelsmith4904]

"My whole life I thought... I retire in 45 years." Just curious about the wording, are you 20 and are talking about your formative years as your whole life, or are you planning to retire late?

[@grantmaxted1160]

Great perspective, Ben. I like to think about it this way. The market is not 100% efficient (especially market tops and bottoms), but it is efficient enough that that vast majority of people (maybe 98%) can’t beat it consistently. Therefore the rational thing to do is to not try, and just index.

[@k0zzu21]

If everyone just indexes, it itself will generate inefficiencies.

[@mrdish2674]

Let us not make fools of ourselves and be clear about one thing. If we had the chance to invest our capital in the Medallion Fund, we certainly would.

[@alex2143]

Oh but you definitely have the chance to invest in the next Medallion Fund. The tricky part is finding them before everyone else does.

[@walasium]

Great video! Want to add that there's been another hedge fund - Long Term Capital Management, that was managed by a bunch of PhDs and Nobel laureates. It had posted great returns since starting in 1995 (in the 40% range) only to be bailed out in 1998, and was dissolved in 2000. So just throwing a bunch of "geniuses" at the problem doesn't guarantee persistent outperformance.

[@MehdiPopotte1412]

You are comparing a fund that couldn't celebrate its 4th birthday with one that has been consistently the best performing investment vehicle in the past 30 years....

[@RaptureReady2025]

LTCM would have collapsed the financial system because the system grew too large. It’s a good lesson and perhaps a good thing that Renaissance caps the size of its capital. They should make a movie about both of these funds.

[@walasium]

@@MehdiPopotte1412 right. And they can continue generating eye popping returns for the next 30 years or more. Nothing against Ren Tech, I'm actually a fan. My point is just that throwing "geniuses" in the fund doesn't guarantee outperformance. And as Ben said, you wouldn't know at inception if it was a winner or not, or if it'll continue winning.

[@quilbyy]

Well, LTCM was managed by a bunch of Economics PhDs and Nobel Laureates, whereas Renaissance is managed by a bunch of STEM PhDs. There lies the difference.

[@walasium]

@@quilbyy and yet the hedge funds that are open to the public that are managed by Ren Tech did quite poorly in 2020. The Medallion Fund did well, but the outside investors, not really.

[@NVSTx]

This man is brilliant, the knowledge that is needed to even understand what he says is insane, we’ve tried to break it down in our video, hopefully it will give you a better view of how you can learn and do exactly like Jim

[@grodrigues3]

Ben, we could all definitely use some common sense investing advice right now. Emotions are super high, and many people are panicking. What's the smart play here? Buy more index funds? Use margin to buy more? Sell and wait for the bottom (I'm guessing this isn't right).

[@BenFelixCSI]

I wouldn't change your investing strategy based on what's going on. Whatever you have been doing, keep doing it. I wrote this for clients of my firm last week www.pwlcapital.com/covid-19-a-letter-to-clients/

[@rman15]

Great video as usual Ben. Would you ever consider making videos on other historical funds like the Tiger Fund or the Fidelity Magellan Fund in the future?

[@phad012]

I'd certainly watch a video on Fidelity. Thanks for the mind blowing video Ben

[@BenFelixCSI]

I’m thinking about one on Dalio. Tiger and Magellan would also be fun to cover.

[@Stefbb]

@@BenFelixCSI Ray Dalios Alpha fund is also a great example on 30 years of risk-adjusted outperformance of the market!

[@niteshdulal3455]

@@BenFelixCSI Eagerly waiting for this

[@db8458]

I recently made you a question related to market timing and Jim Simons, so this video comes as a gift response =). Thanks Ben.

[@BenFelixCSI]

Thanks for watching!

[@Stefbb]

Finally! I've waited for this video since the beginning of time.

[@iandrake4683]

Impressive results. Their trade win ratio isn't as good as I would have thought. But in the end, the ratio matters little, what matters is how big you win when you win and how big you lose when you lose. I created a single security model using a basian classifier with markov chaining. Basically, I would chain together factors that maybe relevant and let the basian classifier filter the noise. I then did parameter optimization on model outputs that drove trade decisions using a genetic algorithm. Ultimately, to get the model profitable, it would have generated too few trades to scale. Their stuff is on another level though. I wish I had that kind of brain power!

[@ericgoto2459]

Very interesting video, thanks. This is my first time hearing about this fund and it makes sense that a group of geniuses would be the ones to beat the market

[@mikemosz9418]

Sitting at 98.2k subs! Go Felix go let’s get to 100!! You’re rise is like that of medallion fund except I’m not nervous at all being (emotionally) invested in it and enjoying each new video ! Keep them coming!

[@alexshchet]

Ben, brilliant comments as usually. Thx a million. The only discrepancy was that Medallion outperform hypothetical model 1,202 times and not 10 times.

[@fervorx]

Nice video and great that you shine a light on being cautious about extreme cases of success stories as "proof" that markets can be beaten. I had the privilege of meeting Simons at conference in MIT, pretty funny guy tbh. One thing that you could've had mentioned is that RenTech does not hire finance professionals at all and how this has also been the case in the "quant" space.

[@donlight3289]

There is no one in history that even comes close to the returns of this fund. The only one who comes close to this fund is the legendary investor Peter Lynch who is considered the best mutual fund manager in history. Not only because of the amazing and constant returns he achieved but because of his work style. These two models could be the richest in the world. Peter Lynch could be richer today than anyone else in the world if he had managed his own private investment fund. But he retired at his peak. And so also this fund, theoretically, given time, can slowly absorb all the money in the entire stock market.

[@infinitebrian9178]

It goes to show how extraordinarily difficult it is to compete in this market. In this day and age, people are using high-frequency trading bots with terabytes of information, programmed by the world's smartest scientists and engineers, and funded by billionaires. These individuals are working 80+ hour work weeks. Index funds are the way to go.

[@alankoslowski9473]

Yeah, the practical advantages of index investing are almost impossible to beat consistently. When an active managers figures out a consistent market-beating strategy, it's typically adopted by many others and largely incorporated into the total market. Unless the fund imposes a strict asset cap like Medallion, this advantage quickly disappears. It seems the only plausible way to beat the market is by identifying novel market-beating strategies before they're widely discovered. Considering most attempts fail, this is practically impossible, so index funds are the way to go.

[@pipebliss]

Ben, I'm glad you made this video because it shows you are unbiased. I agree with you, for the average person, trying to duplicate Simons results would be equivalent to trying to duplicate Tiger Woods' success on the golf course. I can give you an example that is more relevant though. The results of The Motley Fool. It's a $100/year investment advisory service that has been around for 18 years. The two brothers track themselves against the S&P500. They each give one stock pick a month and also tell you when/if they ever sell. David Gardner has produced results of 557% versus 98% for the S&P and Tom Gardner has produced results of 169% versus 78% for the S&P. This is not a small sample of stock picks, this is 24 picks a year for 18 years and any investor can subscribe and follow them. How did they outperform the market over the long-term with a basket of stocks that's as diverse as the S&P500, 24 stocks a year for 18 years?

[@larrydarrell7299]

They got luck with a few that raised their return across the entire portfolio?

[@pipebliss]

@@larrydarrell7299 Luck?

[@Witchblade112]

What makes you believe their claims? I've seen people that actually tracked their recommendations and they reported below-market performance in their data, which they published, as opposed to the Fools themselves. Their advice is absolutely horrible in many cases and at best tantamount to momentum trading. I think you're being duped, sir.

[@Bloogly89]

Wow, extremely impressive record over 30 years.

[@tiendoan1333]

Makes all our traditional investing hero look likes a laughing joke

[@CLaFong]

He got his PHD at UC Berkeley undergraduate at MIT. In an interview he said that his Profs at MIT told him he should do his graduate work somewhere else to get a different perspective on mathematics form others at another institution.

[@jbullionaire2749]

Wish I was smart enough to do what they do!

[@Sportsoft]

I liked this straight forward video. Well done Ben. Looking forward to seeing your other videos!

[@Joe-jc5ol]

I mean sure I'd stick to my index funds, but I wouldn't mind giving them 1000$ or so for them to maybe give me back millions in 15 years.

[@Exachad]

I don't get why. If people are that risk averse, why invest in index funds? Why not treasury bonds? Isn't there technically a chance that historical trends will suddenly break and the market will underperform for decades to come? Highly highly unlike, but still. It actually has happened in the past when the market fell after 2000 and didn't recover until 2007 only to get wrecked again right after recovery and not recover again until 2012. The Medallion fund has provided more consistent returns than the S&P 500. I would throw at least half of money in if I could. I mean, the fund has proved that it can handle massive market crashes like the dot-com bubble and the real-estate crisis better than the market. I think that it's worth the risk.

[@Joe-jc5ol]

@@Exachad I am perfectly happy making a solid 7 to 10% real return a year. If risk could be depended on to produce returns it wouldn't have been called risk.

[@Exachad]

@@Joe-jc5ol But you're not making 7-10% a year. At least not consistently. The market goes up and down all the time. If you were unfortunate enough to invest at the height of the dotcom, you wouldn't have broken even till the start 2013 (assuming you didn't cash out during the small ~6 month window you had in late 2007 to break even). This isn't even a strawman thing to say. A lot of people (including myself) want to jump on the train of massive returns. Many people have done that through our very long bull market run. Of course, this time there's zero, absolutely zero practical evidence to suggest any sign of a bubble this time, but I'm just illustrating that people do jump on when they see good returns. If you think there's a guarantee that the market will pay 7-10% every year, you're wrong. There's no proof that the market will continue to go up at that rate. All we can use are historical returns to justify that the market tends to go up at the rate over long periods of time. If it was foolproof, why would people invest in lower yield longer term bonds? The issue in the window of time we have, we can clearly see that the Medallion Fund is extremely dominant, especially during downturns. The fund has crushed every recession: 2000, 2008, and even 2020 (as of April 14, it was up 24% YTD, according to a WSJ article by Gregory Zuckerman, the man who wrote the book referenced by Ben in the video). Sure, we have a longer window of time for the S&P 500, but whether you trust returns from a period of time where everything was so incredibly different is up to you. 1988 was a long time ago. Sure, a market efficiency correction could theoretically happen, but what's to say that the market won't be impacted by this? It's also unlikely seeing that the Medallion Fund is a relatively tiny fund, so their orders are small. Nowadays, quant funds are a big thing. Back in the 1990s if no one figured out their strategy, I'd understand. These days, I'm kind of shocked. Even if the strategy is caught, who's to say that the fund will go down afterwards? It might be flat or even slightly up if people don't believe the leak. Regardless, all you have to do is hope that for a few more years, their strategy isn't caught and for some reason, exposed to the whole world, which is even more unlikely. Who wouldn't use the algorithm themselves if they find it? If another similar-sized firm (unlikely for new funds at start because none of them are that big at that point) uses the algorithm itself, Medallion's fund's returns may still be decent. Similarly in the market, you have to hope that you didn't just buy before an impending recession. This is especially true if you need to withdraw some money every year. There are risks for both, but it appears that the risk/reward ratio is lower for Medallion fund in almost both ways. Returns and risks during downturns.

[@billybillson9831]

@@Exachad thats why ppl who hold index funds hold for decades

[@yojmb9]

Ben, great video as always. Is your investment firm moving to the Steve Jobs dress code?

[@Newsthink]

This was super informative - thank you for posting. Also, do you know if RIEF is pronounced "R-I-E-F" or "reef". Been getting conflicting answers and thought you might know. Don't want to mispronounce for an upcoming video :) - Cindy

[@davidallenmoneystories]

Great video, I read the book recently and you describbed it very well! Cheers

[@CYBERCATXO]

Anyone can be billionaire with this fund strategy is crazy

[@DanteTrickster]

Ben, some argue that his returns could not be true, since Medallion isn't auditable and their pension funds that is open to public is mediocre at best. What are your thoughts on that?

[@AlessandroBottoni]

Great video, congratulations! As long as I can understand, market inefficiencies (allowing the investor to have an edge) can come from two sources. The first one is *inertia* and happens in the time domain. Information (and action) needs time to propagate and this imposes a limit on how fast the market, as a whole, can adjust prices to new info. The player who plays faster can win. The second source is "mass": the sheer amount of trades performed by these funds. When you play one million trades per day, you just need a very small edge (a very small statistical asymmetry) to get a gain. Neither of these sources is available to the average investor. Not even to many middle/large-cap funds. You need a *huge*, hi-tech company to perform this strategy. It is a matter of *money* . Money makes money. A huge amount of money can even extract 66%/Y of return from an almost-perfectly efficient market.

[@HitsOfRage]

Great video as always, thank you! Easily digestible food for thought.

[@MrJupton1]

Ben, Good stuff! Thanks! Gotta get around to read Zuckerman bk. $100 to $400 Million! and 66% return y2y! Wonder is Uncle and Charlie have numbers like that!

[@SuperKainga]

Hi Ben, Is it correct to say that a mispricing is found in a stock that has favorable intrinsic value but is undervalued in price? Also would the medallion fund have been successful in emerging markets where the investor population is less as well as number of stocks?

[@GoodComedian2011]

Reminds me of Long Term Capital. Same pattern: Nobel prize level specialists, super “accurate” model, trading.

[@BenFelixCSI]

Renaissance learned some lessons after watching LTCM fail. They did not double down on trades that weren’t working and they did not keep trades open for very long.

[@stylezNsmilez]

@@BenFelixCSI This was especially true during the tech crash. Although, I have read that this was largely due to Simons, himself, 'actively' intervening

[@bombecapital773]

This is exactly what we do with Bombe Capital, as well as Simons, and inspired by Alan Turing a group of top-level scientists decided to get together to design algorithmic models that predict with unparalleled precision the perfect highs and lows in financial markets and cryptocurrencies, we are achieving it and we are going to create a revolution in the world of investments.

[@westsidecater]

Is there a way to see what Medallion buys and sells, even if it's delayed info?

[@putnaik9144]

No

[@Flawlless]

Yes, in the 13-F filings

[@atableinthewilderness680]

@@Flawlless you could attempt to look at their winning trades and find a correlation in patterns if you wanted to waste some time lol

[@ravindertalwar553]

Thanks for the updates please

[@140aj]

I’d like one of those too

[@NoName-vd9rq]

Brilliant video

[@featherboards1565]

Ben, I know I'm not the only one who hopes you're working on the next video!

[@anon5704]

The web says Simons was worth about $4 billion in 2006 and recently about $22 billion in 2019. If these are true, that means his personal assets grew at a rate of about 14% per year during that period. That’s not bad considering taxes, expenses, the financial crisis etc, but it’s also nowhere near 66% per year. Also, their Institutional Equities Fund reportedly lost money for investors in both 2008 and 2009 while their Medallion Fund made money for employees only

[@BenFelixCSI]

I’d be surprised if Simons has 100% of his net worth in Medallion. Edit: Simons can’t have all of his net worth in Medallion because the fund is capped at less than his net worth and the other employees’ capital also needs space.

[@robertbrawley5048]

Thts interesting . Thanks for looking it up and reporting it here

[@abu4729]

What instruments were they trading?

[@ELIOSANFELIU]

Computer models to trade as well as mathematics models(Trader and investor) to improve hedge funds system¡¡Magic brain¡¡

[@centralnyguy37]

Ben - Do you have any plans to reveal your thoughts on the recent market downturn?

[@BenFelixCSI]

I've thought about it. Maybe. My short answer is "unless your portfolio is not risk-appropriate for your situation, don't worry about it. And if your portfolio is risk-inappropriate, why are you just realizing that now?"

[@centralnyguy37]

@@BenFelixCSI I didn't just mean it from that perspective. I don't think I am as worried as the market sell-off and volatility seems to indicate many investors are. I'm a buy and hold kinda guy - regardless of what the market does. I'm seeing the downturn as an opportunity to buy cheap funds which will afford that much more of a return when the market does turn around. I'm interested in your thoughts, but not just from the perspective of someone who is worried. Thanks for responding though.

[@BenFelixCSI]

I'd say the exact same thing in response to this question. Has your tolerance for risk changed based on the market decline? If you think that you should be a more aggressive investor, the right time to change your portfolio is as soon as you realize that. Changing based on external market conditions is not something I would suggest.

[@centralnyguy37]

@@BenFelixCSI Thanks for the feedback - I appreciate it.

[@tylerpotts4304]

On a similar note, Ben, I would love to hear your reaction to a statement Jim Cramer made today about index funds in light of the virus. I will link the full video below which is 12:26 in length with the relevant section being from 5:52 to 6:35. One notable quote was: "The problem with the index funds is that you inevitably own both the winners and the losers, and the difference between winners and losers has become too stark for that to make any sense." He goes on to cite the examples of airlines and oil. kzbin.info/www/bejne/pKLFdnZ3iq-cpZY

[@zzzzzzzzzzz6]

It's more like Medallion is *part* of market efficiency.. though if it's capped at 10B some of those inefficiencies are bound to still be swimming around (albeit in harder to capture contexts)

[@dmoon9037]

Yes, Medallion making the market less inefficient for the rest of us scrubs.

[@philongbui1235]

He was my math professor

[@f3wbs]

I found out about Jim Simons a week ago. I wish I was as good in math as he is.

[@julianschmahl8267]

Can you do a video about the positive and negative effects of negative interest rates in the eurozone and japan and what it means for investing?

[@nietur]

Incredible.

[@OKOK-hm2is]

Correct me, if I'm wrong. But if they are capping fund at 10 billion and distributing all profits - doesn't it mean that investors cannot benefit from compound interest in the fund? And accumulating return would be much lower?

[@raydjyoti]

You could reinvest the profits yourself every year after taxes

[@alankoslowski9473]

I think so, so investors would need to reinvest the profits somewhere else.

[@alankoslowski9473]

@@raydjyoti I don't think that's an option. If there's a hard cap on assets, they probably won't allow reinvesting.

[@OKOK-hm2is]

@@alankoslowski9473 yes, and it means - receive same interest rate as everybody else.

[@MRT-co1sd]

Remember you don’t have to be able to predict the future to make money. A lottery winner did not predict the winning numbers you just have to be lucky enough to choose the right numbers.

[@EdgarDeSola]

Fantastic! Jim Simons is my hero!

[@hTyKn1]

Out of interest Ben exactly which index funds are you sticking with?

[@BenFelixCSI]

Currently all of my long-term assets are in DFA607 which is somewhat similar to the model portfolio described in this paper www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Felix-Factor-Investing-with-ETFs_08-2019-Final.pdf

[@Riley321b]

@@BenFelixCSI Ben, don't you put your money into DFA small cap value funds? DFA607 isn't that.

[@BenFelixCSI]

DFA is always tilted toward small value, but not usually all small value. 607 is about 3x in small value relative to the market while still being a total market fund.

[@joepeeer4830]

ty

[@telemedicinejnab3208]

Excellent video, as usual! Can you please tell us about the Magic Formula investing?

[@irisobobo]

Hi Ben! Thank you for your videos! I've seen all of them and learned a lot. I have a question about this one. You said "having more capital than its strategies can handle". What do you mean by that? Could you give me an example? Why would a strategy stop working when you have more capital? Thank you!

[@BenFelixCSI]

The Medallion Fund trades on what their systems believe to be mispricings. Based on their track record it seems that these mispricings do exist. However, there are not an infinite amount of mispricings to exploit. If they continued to push their strategies to deploy more capital they would eventually hit a hard limit and their returns would likely suffer. Further evidence of this is the fact that they have launched other funds with different systems which have done alright but nowhere near what Medallion has done. Another example of this problem is Long Term Capital Management (LTCM) which is probably also worth covering in a video eventually. They had a beautiful trade they was making them a lot of money, but they kept taking capital until they had to find new trades that ended up blowing up in their faces and nearly collapsed the financial system.

[@irisobobo]

@@BenFelixCSI Thank you for taking the time and answering comments! Now i understand what you meant by having too much capital! Also, it might be interesting to discuss issues with having too much capital or how different strategies work/don't work/change with capital in one of your podcasts, just an idea... And a video on LTCM would be great! Also, another topic i'm now interested in (after looking into Medallion fund for a bit) is quant trading. Maybe a topic for another video? Anyway, thank you! Cheers!

[@BeeBombard]

What index funds do you use thanks

[@vishka07]

Can you talk about options trading and Tom Sosnoff, he does probabilistic trades, wonderful video and great information.

[@starstenkahl7303]

Hi Ben, Thank you for your awesome videos, you are helping me a lot with my decision making. Atm I am thinking about factor investing and your videos about small cap, value and low vola were very helpful to me, but what do you think about the quality and momentum factor? I would love to hear an answer of you Greeting from Germany

[@geosvandos]

Hi Ben, ¿why do you doubt about RTM's consistency but not about the five factor model consistency? Thanks for another great explanatory video! I might not have to read the book now haha

[@BenFelixCSI]

Good question. The Medallion Fund is an anomaly. There is no way to explain its results within the theories that generally explain how markets work. Most evidence points to markets being mostly efficient. Most active managers fail to beat the market consistently. The five factor model exists within the framework of market efficiency. It has strong theoretical roots and is empirically robust across time periods and markets. Betting on an empirical anomaly that is not consistent with economic theory seems risky to me. Betting on the world behaving the way that theory suggests it will (and knowing empirical testing generally agrees with the theory) makes a lot more sense to me.

[@geosvandos]

@@BenFelixCSI Nice answer, thanks!

[@seniorspam2453]

Well by the nature of short term trading, especially high frequency, it’s not unreasonable to have returns greater than the “market return”, which is a benchmark used typically for long term, buy and hold strategies, where’s there’s way less trades and therefore a smaller compounding effect. Imagine this: you make monthly in and out trades that average you 2% return a month, which I think we can agree is not unreasonable. Even without compounding, that’s a 24% return a year before taxes. You beat the market. This is why I don’t think it makes sense to use the market return as a benchmark for this type of trading. And because this type of trading usually takes advantage of short term momentums of stock prices, it doesn’t really test whether there’s inefficiencies in stock prices in the long term.

[@BenFelixCSI]

I completely disagree. There is no evidence or logical reason to believe that short-term traders are able to beat the market.

[@bryan-9742]

Nice video. Ben appears to still cling to the concept of efficiency though. From a mathematical standpoint you wouldn't be "arbitraging away" market inefficiency unless everyone is doing the trade (which people don't know), and/or the methodology in the trade was similar to everyone else's applied methodology for "alpha" liken to an econometrics model when implemented however it sounds like they change unique strategies and implementations often, and "given two quant funds competing for alpha"; well that would imply that they are the only two players AND they make up a majority of the market trades. I expect better from a CFA Charterholder!. Stop being in love with the efficient market Koolaide Ben. :)

[@BenFelixCSI]

Take a sip, maybe you’ll like it kzbin.info/www/bejne/r5TSYaZ5bKZ9aLc

[@rustylittle7356]

Very interesting video. If I wanted to run some simple models using historical stock market data (stock values, p/e, dividend payouts, etc.), do you know where a good place to get that data be?

[@BenFelixCSI]

portfoliovisualizer.com might be a good place to start.

[@charlievollmer1389]

Hey Ben... with the Covid shake up, would you still not pick any stocks?

[@CarnifaxMachine]

RIP Jim.

[@moneyobsessed]

I feel dumb trying to be a discretionary trader...

[@Bhomasolini]

that was really interesting

[@CaseyBurnsInvesting]

Not taking my chances against these computer algorithms. Buy and hold it is.

[@perotal]

Amen

[@gmo709]

What was the expense ratio for that fund? Must have been pretty high with all the turnover. With its performance, I guess the investors were fine with that. Lol. If he and his team did this, why hasnt anyone else been able to pull off returns like this over time? Hmmm.

[@PhilippPogosov]

So how can we benefit from this and outperform the market on our own?

[@alex2143]

Philipp Pogosov You can’t. If it were so easy to consistently outperform the market that it can be explained in a 10 minute KZbin video, everyone could outperform the market, which is literally impossible. The way they did this was by having a data advantage before that was mainstream. They had better data and better information in a time where data and processing power was not so ubiquitous.

[@lucianocartela]

Ben, what do you think about the new HSAV ETF recently launched by Horizons? What are the risks involved and does it really have a guaranteed gross yield of 1.25%?

[@spilkcore-8205]

Hey Ben, can you help me understand how Hidden Markov Models apply to trading? If the observables are the day over day (or some other unit of time t) stock prices, what could be assigned to the hidden states? Or do I have it backwards in that you assign some parameter that affects trading as the observable states, leave the price as the hidden state, and use a HMM to predict the state of the price tomorrow based on the probability of experiencing some observable state tomorrow?

[@TheMarketisOpen]

The hidden state is the stock that you want to predict. So say you want to know if the stock market will be up tomorrow and you know something such as the volume today. From that you can calculate a probability of whether the market is up or not. Look for a video on HMM by Luis Serrano which is good but assume in his example the weather (sunny or rainy) is a stock.

[@spilkcore-8205]

Oh yeah I know the weather example. I was just trying to understand how this could apply to stocks but I think what you’re saying makes sense. The only other question I have is how to account for other variables that effect price. Correct me if I’m wrong, but I thought one of the assumptions of a HMM is that the probability of the observable being in a particular state at time t+1 is solely dependent on the state of the observable at time t. So is there a way to create a multi-dimensional chain where different observables affect each other?

[@TheMarketisOpen]

@@spilkcore-8205 I think you're correct that it is a chain so one always follows the next (so there are no multi-dimensions but you could create thousands of separate chains each following different things so you create a chain based on volume, days close, day's open, etc). Also each day you learn something new about the weather (in our case stocks) helping you make a better future prediction. So your model is always getting better potentially

[@spilkcore-8205]

The Market is Open gotcha gotcha, I see what you mean. Thanks for clarifying!

[@123-f6j8h]

They are the liquidity providers in the market, taking money from people trading/ gambling.

[@PulsedPower]

I am curious as to what you think about investing in stock of companies who drop significantly due to alarming, but temporary, bad publicity. Like Norwegian Cruise lines for example. Their stock dropped 50% due to the corona virus on one of their ships. My intuition is that there is a much higher probability that the drop is a natural, but temporary, drop due to the wide publicity and fear, rather than a permanent detriment of the cruise line. This would lead me to think with some confidence that it would be a good idea to buy their stock and sell it once it reaches some higher percentage of what it was at before(70,80,90%), since that bounce back seems inevitable. Of course this flies in the face of the proven wisdom, "dont try to time the market", but i have a hard time watching these "opportunities" pass by and thinking they seem to guarentee short term returns!

[@grantmaxted1160]

It’s very tempting to try and catching a falling knife. But 40% of all stocks drop 70% or more and never recover. Are you sure you know, in advance, which ones to avoid?

[@PulsedPower]

@@grantmaxted1160 Good point!

[@vdmur7952]

Wasnt it closed since ‘93 not ‘03?

[@dmoon9037]

If the fund is closed to outside investors, and if its algorithmic method(s) are corporate secrets, then what risks emerge from publicity of its performance record?

[@BenFelixCSI]

Many risks. This is the persistence question that I raised at the end of the video.

[@Elaba_]

Imagine the preparation that went into this video.

[@MrAdhoul]

His PhD was from Berkeley, not MIT

[@radumurzea6112]

RIP Jim Simons :(

[@jimjackson4256]

Try doing 1.66^30 .It equals about 4 million so he multiplied his money by 4 million in 30 years?

[@shaun9286]

Yes the market is efficient. I am working on a pattern recognition ea and is returning good returns.

[@djayjp]

Proves the opposite?

[@lucasvasconcelos9156]

Hey Ben, what about a Covid-19 video?

[@BenFelixCSI]

Yep. Something is coming soon.

[@lucasvasconcelos9156]

@@BenFelixCSI Thank you! Keep the good work!

[@Sammy-uv1kl]

Can you post a video on the current pandemic / bear market situation

[@BenFelixCSI]

It's coming.

[@johngreen907]

RIP Jim

[@Billionaireben]

Here's the downside of sp500, over it's history it's average return looks impressive; but when you remove inflation it gains about 4.85% annually compounded. Of course, inflation is not necessarily as bad as it looks; if you own a home and your medical care is covered (either from a job or medicare, where you aren't paying for it) then inflation isn't as big a deal when dealing with large numbers like life savings in sp500 compared to small numbers like hourly income. That being said, Warren Buffet said if he had $1 million he believes he'd be able to make a 50% compounded annual return (I'd imagine until he got to about 10m) and I think 40% pre-tax is very doable but once you get so rich that it's becoming challenging you'd be wise to move to Puerto Rico to minimize tax losses from profits. If you hold long term, no need to move to PR as 20% tax rate isn't as bad as 35% (subject to change, that's a rough number.)

[@tiendoan1333]

Quick fact: The return of the Medallion Fund is not compounded. Compounded return for the fund is about 10-12% nominal depending on how you approach the math.

[@sunilds3590]

Can you share reference to support this statement if you don't mind?

[@tiendoan1333]

@@sunilds3590 I did the math myself so I am the source :) Think about it, if the fund compounded 30% annually, they would be a multi trillion dollars fund (not billions)

[@sunilds3590]

@@tiendoan1333 but I remember they mention profits are paid out annually and the fund value is capped off.

[@raydjyoti]

@@tiendoan1333 They pay out profits every year, the investors can pay taxes and re-invest into other assets themselves and compound it.

[@lunarmodule6419]

Hi Ben - theres an anti ETF trend right now. We can see tons of "ETFs are toxic products" videos on KZbin. I know these people are nervous Fund managers, but whats your take on this? Thx

[@larrydarrell7299]

Michael Burry, who made billions on the 2008 crisis, says ETFs are a ticking time bomb

[@Telencephelon]

Basically 50% of failed trades and extreme leverage would make me nervous. But 50% failure is a lot better than almost all individual traders

[@yannchevrier-foundy5063]

I have my doubt about an HFT fund with connections in Colombia.

[@therealb888]

Tell me more about it

[@Mrhamada199]

Whats the point of having CFA and in the end is useless as advocate of passive investment? Just follow the index and put finance curriculums in garbage. Tell me if am wrong

[@InvestingEducation]

Sounds too good to be true, and we know how that usually turns out. But still interesting

[@frankxu4795]

It is reality, not some science fiction. To be clear, this kind of performance cannot possibly be universally true. After all, the stock market is a zero sum game and there is always another person on the other side of the deal.

[@stana1278]

@@frankxu4795 if you think that market is a zero sum game, you were extremely bad at listening Ben Felix. It is NOT. It so obviously grows, that your notion is almost unbelievable

[@frankxu4795]

@@stana1278 You mixed the valuation with cash value. Yes, on paper, you have a lot of "value" in your portfolio. The value only exists when there is someone who wants to buy it. Whenever someone cashes out, someone needs to buy in, no exception. It is true for any stock market transaction. The stock market grows in VALUATION, not CASH VALUE. There is NOT enough cash in the whole world to buy the whole stock market. When liquidity is plenty, valuation is as good as cash value. Problem is when market is going down and a lot of people want to sell, liquidity soon runs out and valuation can collapse. Cash value does not collapse.

[@stana1278]

@@frankxu4795 it has never collapsed on a long run. You can continue to be wary of black swans, or think that value is not value

[@frankxu4795]

@@stana1278 really? Look at Japan's stock exchange. It is now at about 60% of its historical high despite 10+ years of growth. Being wary is not the same as not investing, definitely not being a moron on the facts around you.

[@keenheat3335]

i remember in one of jim simon interview, they mention that a particular trading strategy have a finite shelf life, over time it will lose effectiveness due to too many people discover the same strategy. However, overtime market will also generate new inefficiency, which allow room for new trading strategy. So because their strategy discovery process is entirely automated by algorithm, their trade strategy can be updated at a faster rate than their competitors. Although since they closed their fund from outside investor, I guess they don't care about outside competition.

[@albertoalarconparedes8947]

Hi ben can you put subtitles please. I speak spanish and is dificult for me follow all in english. Thanks for you video.

[@richardcholak4953]

Welcome to freeway by Aubit!

[@the_primal_instinct]

I mean, I'd bet 100$ if I had access to them.

[@BenFelixCSI]

True. If they'd take my $100 I'd roll the dice. If I had to be all in though I don't know if I'd do it.

[@patrickpettibone9749]

Brother you and I both know, if you could invest in the medallion fund you would put a significant amount in 😂😂😂

[@alex2143]

Nothing's stopping you from investing in the next Medallion Fund. You just gotta find it before the rest do.

[@rpatel6461]

so what is their secret?

[@alankoslowski9473]

We don't know and they aren't telling.