Attack of the Quants
by Lady Trader | Fan Fun with Damian Lewis | April 13, 2018
Greeting’s from the Trading Desk! This week’s recap will be broken down into three parts: the first part will be a bit of a rant before the actual recap, the second, on Axe Capital and the attack of the “Quants”, and last, but not least on the dealings of Axe and in keeping with his God Complex, how he gave two people their “lives” back.
Rant: I need to address Ira and his girlfriend. I usually don’t veer off into the non-financial aspect of Billions, but it was the opening scene, and it pissed me off and had me yelling at my screen.
Ira, if that chick doesn’t want to marry you when you’re broke, why the hell would you want to marry her when you’re loaded? She basically told you she was a gold digger! And, she knows you are in financial trouble, but still orders those damn truffles? GTFO with her. Maybe your revenge was giving her that fugly ring? Ira, go out and get yourself a real woman, not a money grubbing Barbie. It’s women like that who give us GOOD women a bad name. OK, end of first rant. (If anyone who knows me and just read that in my 100% Brooklyn accent, thank you!!)
Oh, and one more thing: these people who have can’t live on $320 million or $40 million? WTF is wrong with you? Lara is especially obnoxious. Girl, you love to tell everyone you’re from Inwood, and a tough chick; you came from nothing! I’m sure you can figure out how to economize on $320M! When I was let go from my last job, and decided to go out on my own, it meant that a regular paycheck was not going to be coming in for a time. Financial considerations and priorities had to be changed. Weekly shopping at Prada? Gone. Season Mets and Rangers tickets? Adios. You learn to live within your means, and “like to have” gives way to “need to have”. Lara has never been a character that I liked or believed in, but this put the nail in her coffin for me. Bye Felicia!
The analysts at Axe Capital are freaking out. Taylor is interviewing some dreaded “Quants”!! It’s causing butt sweat for Mafee, and panic attacks for Ben and Rudy! They are all worried about being replaced by “the robots”.
Recently, there has been a move by pension funds and institutional money out of traditional hedge funds and into quant shops or passive investments (ETFs). These types of investments are less risky and are generally cheaper to invest in. They don’t have the costs of analysts, and don’t charge the usual 2 & 20. This trend has put many fundamental analysts out of work. Running an “algo” on a computer makes a fundamental research analyst redundant.
I was on the buy-side as a fundamental equity research analyst for many years. In that capacity, I researched a company’s financials, management, growth prospects, etc., and would then recommend it to my Portfolio Manager for inclusion in our Large Cap Growth Fund. We had a quant group at our firm, which we called the “goons”, as we looked down on what they did. Our thinking (at the time) was “anyone can feed info into a computer and have it spit out ideas; we actually have to know things!”
That was several years ago, and now quants are a lot more sophisticated and are more than just “goons”. My partner and I run a sort of hybrid strategy – the computer chooses the trades based on the criteria we have set, but that criteria is based on our fundamental knowledge and years (a combined 54 years!!!) of experience in the business.
It’s with this background that I totally get the uneasy feeling floating through Axe Capital and the thought of Taylor wanting to hire a quantitative analyst. The boys are worried, except for Dollar Bill. (I know Axe is my spirit animal, but Dollar Bill is a very close second!) He’s not worried at all, and as I have had to say in my prior two posts, speaks for me when he says “ No computer can get the kind of info I can or know what to do with it the way I do, so buck the fuck up! No Fear!!” I believe the future of investing is a hybrid strategy, similar to the one we run. A computer cannot make a judgment call on the management of a company or see changes in market sentiment due to a breaking news event. Algos are good for trading; analysts are good for investing. There is a big difference between the two.
Wags is not on board with hiring a quant. Over lunch with Axe he vents his apprehension about Taylor’s interviews with some candidates (“wild guesses, with math!”). He has no confidence that they can do as good a job as his people. Axe never used quants. (Wags, don’t you know Axe was the machine; he told Steph he was the Terminator!) Axe gives Wags his orders: help Taylor.
Read the rest of the original article at Fan Fun with Damian Lewis