
Silicon Valley Hedge Fund Takes on Wall Street with AI Trader - bunburying
https://www.bloomberg.com/news/articles/2017-02-06/silicon-valley-hedge-fund-takes-on-wall-street-with-ai-trader
======
mjpuser
I just checked out glassdoor, and it seems like they don't know what their
product should be since top execs don't want to agree on anything.

> We have too many executives for a company this size - most don't add much
> value except for fighting with each other and politicizing issues. The CEO
> lives in HongKong and remotely manages this crew of distrusting, non-
> supportive and close-minded execs. The HR function is practically a joke.
> You don't ask questions, challenge their decisions or speak up - they'll
> threaten to fire you if you did. They have not been able to productize their
> technology, their trading business has not picked up and their sales
> pipeline is pretty dry for the other businesses. They have laid off a large
> number of people recently and financial trouble seems to be brewing - lot of
> marketing smoke in here!

> Focus on one product and give it more time.

> Productize, productize, productize.

~~~
reverend_gonzo
Which is really odd, since if they had any idea of what they were doing, they
wouldn't need to sell. Trading is among one of the few industries out there
where you don't need to have anything like a customer.

What you do is make money, and if you're making money, well, you don't need to
ask anybody else for money. This tells me that its a bunch of executives who
either don't know anything about trading and/or don't have any coherent
strategy, and are really just trying to throw enough buzzwords out there to
get investor capitol.

~~~
lpage
Peter Muller has the most succinct summary of this that I've seen in his (very
worthwhile) opinion piece on proprietary trading [1]:

Sharpe Ratio, Marketing department

≤ 0: Runs the firm

0.25: Very important; involved in all investment decisions; major focus on
asset gathering

0.5–1.0: Secondary

1.0–2.0: Almost superfluous

≥ 2.0: What marketing department?

[1]
[https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2004/...](https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2004/Muller_Proprietary_trading.pdf)

~~~
mojoe
For others:
[https://en.wikipedia.org/wiki/Sharpe_ratio](https://en.wikipedia.org/wiki/Sharpe_ratio)

------
SEJeff
The clickbait headline is amusing, but "Wall Street" has been doing this > 10
years. I'm genuinely not sure if they're trying to "beat wall street" or
simply be yet another quantitative hedge fund that happens to use machine
learning and neural networks to power their strategies.

Most real electronic trading firms are putting those algorithms in hardware.

Source: Have worked in HFT the past 10 years.

~~~
digler999
> Source: Have worked in HFT the past 10 years.

OT question: how would I get into acquiring market data to try my own
backtesting strategies ? Is there anyway to "get in" without putting up $5k +
for the data ? I'm not green to this, I worked at a prop shop for a year
writing market feed handlers. I know the dangers of overfitting data and how
hard it is to make money (so I'm not deluded by a fantasy). I want to start
out just for fun doing backtesting and see if I can scrape out a (paper)
profit, but accessing historical data seems to be the hard part. I dont think
online services that offer this would work for me because I want to use
intraday data and replay many times with different parameters. I want access
to "the whole firehose" if you will.

~~~
kybernetikos
Not a personal recommendation as I haven't used it, but you might find
quantopian.com fun if you've got any python.

------
bfrog
Huh, hasn't wallstreet being doing this, and even putting these things into
FPGA's for nearly a decade now? Hell I wouldn't be surprised if they're
printing ASICs with their algos.

~~~
edblarney
Surely - but 'AI' is new. Surely 'Deep Learning' is something at least they
are not doing widely, because it's difficult to pull off.

That said, anyone actually doing it would be smart enough to shut the hell up
about it.

Finally - one might argue that the big money is all made in 'soft insider'
information anyhow, and that with so much tech, analysts already there ...
there's just no way to win without clear leverage i.e. relationships, servers
on premises of the trading facility, or some other non-market advantage.

~~~
brilliantcode
This is just an anecdotal experience but according to a former hedge fund
manager, insider trading is an open secret in the industry. You really can't
expect to gamble away billions of investor's money without an edge.
Information is the only possible edge that is closely guarded in the markets.

I don't know how true that is, he's a washed up piece of shit that wall street
chewed out but has the eyes and ears of gordon gekko wanna be finance grads.

but I'm writing this because this is like the 3rd time I've heard this. Just
throwing it up there if "soft insider" information is what they were referring
to.

~~~
edblarney
Big funds will have direct access to CEO's and execs.

They'll sit down for an interview. Technically speaking, everything that the
CEO will say has to be public information. It has to be above bar.

But sitting in the room, being right there, one might easily be able to glean
more information than is actually public. Ergo - and edge. And it's not quite
illegal.

So that is a form of fairly above board 'soft inside' information that nobody
will ever go to jail for.

As far as more obvious 'insider' \- maybe so, maybe not - I don't know - but I
do know that you don't even need to do that.

But generally I believe there is basically no reasonable way to beat the
market: all of the quant stuff is done by very smart people, fast computers,
the value investing done by massive players like Buffet, and the regular
investing done by people with 'extra info'.

I really do think that small retail investors are the losers in the casino.

Oh - and also 'big dumb money', i.e. low-performing people at big banks,
sitting on huge sums that the hedges get little bites out of.

~~~
brilliantcode
How many retail investors get face time with CEO of Kraft? It's a pretty
rigged zero sum game for the rest with much of the edge in the hands of the
few.

I actually started to treat trading very much like the casino. I just do it to
make news reading interesting. Of course the mental pictures I form in my head
are influenced by what I read. I use my gut....

Therefore retail trading is a social acceptable gambling.

brb shorting TSLA.

------
brilliantcode
> Sentient Technologies won't disclose its performance

"We are doing some shit but we have nothing great to show but you should
probably read the rest of our PR article."

> The CEO lives in HongKong and remotely manages this crew of distrusting,
> non-supportive and close-minded execs.

"We are a highly _disruptive_ people working on _disruptive_ technology in a
_disruptive_ way."

------
antr
PR bluff.

I find the Renaissance Technologies story more compelling and worthy than a
press release drafted by the VCs funding/cheering Sentient (Kleiner Perkins,
Tata, Horizon, etc.)

------
JTon
This is the most interesting bit for me:

>Sentient's system is inspired by evolution. According to patents, Sentient
has thousands of machines running simultaneously around the world,
algorithmically creating what are essentially trillions of virtual traders
that it calls "genes." These genes are tested by giving them hypothetical sums
of money to trade in simulated situations created from historical data. The
genes that are unsuccessful die off, while those that make money are spliced
together with others to create the next generation. Thanks to increases in
computing power, Sentient can squeeze 1,800 simulated trading days into a few
minutes

~~~
rbinv
So, genetic algorithms? Good luck with that.

~~~
sixtypoundhound
I recall reading an early article about using genetic algorithms for stock
trading in the early 90's. This isn't really that new....

~~~
draugadrotten
One of my school mates did it in mid-90s and he got his first yacht five years
later. It worked for a while.

~~~
gaius
The second happiest day in your life is when you buy a yacht...

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robert_foss
Taking on Wall Street by participating in Wall Street?

I somehow doubt how 'disruptive' this will be.

------
jliptzin
Haven't wall street firms been doing this for decades now? I remember 10 years
ago I created a trading algorithm that ran by itself without my intervention.
I fail to see what is different about this company than some generic quant
hedge fund.

~~~
solumos
They use "the field of artificial intelligence known as machine learning" duh.
"Big Data" and "Data Science" weren't around 10 years ago /s

------
logicallee
Can you imagine an investment AI that did not have human biases. Here are some
my favorite investor biases:

SALIENCY bias. People remember memorable things. The guy who made $100 million
by investing in a Romanian immigrant will invest in you if you're a Romanian
immigrant, but not if you're one country over even if their education and
politics are the same. Computers don't care.

AVAILABILITY bias. People analyze data that is available. If you have
worldwide sales figures your market seems huge. If you no data investors will
be strongly prejudiced against it.

CONFIRMATION bias. Investors who have a bubble mentality will see the positive
and reinforce their theory, however non-rooted in facts (for example the
theory that silicon valley teams will succeed and, for example, foreign teams
will fail)

There are a bunch more, too.

[http://rationalwiki.org/wiki/List_of_cognitive_biases](http://rationalwiki.org/wiki/List_of_cognitive_biases)

[https://en.wikipedia.org/wiki/List_of_cognitive_biases](https://en.wikipedia.org/wiki/List_of_cognitive_biases)

An AI would not suffer from any of these. However, due to the skills required
to evaluate a pitch, the AI would have to be much, much smarter than any
expert system today. Today you can't even tell a robot how to boil a pot of
water (no matter how explicit your verbal description is) or anything else,
and have it even come close to succeeding.

We're far away from robots (AI) evaluating pitches and business plans. But how
cool would that be!

~~~
user5994461
> Can you imagine an investment AI that did not have human biases. Here are
> some my favorite investor biases:

It's actually a trivial problem. Just need to ask a few questions to determine
the investor risk profile and goals, then pick the appropriate Vanguard fund.

------
lutusp
"Silicon Valley Hedge Fund Takes on Wall Street with AI Trader"

Another generic, contentless article using the standard outline: (name) takes
on Wall Street with (scheme).

Percentage of traders who beat the market average: 50%.

Traders to the left of the average who assign the outcome of bad luck: 100%.

Traders to the right of the average who assign the outcome to a secret method
and/or genius: 100%.

An unscupulous broker can "prove" to you that he is a stock picking genius, by
mailing you correct predictions of the market _in advance of the outcomes_
for, say, six months, then ask you to assign your assets over to him -- but
it's a scam, a trick. The explanation:
[http://arachnoid.com/equities_myths/#Miracle_Man](http://arachnoid.com/equities_myths/#Miracle_Man)

------
raw23
Frustrating that so many great minds are swooped into the finance industry.

The lure of money is too strong.

~~~
hendzen
Frustrating that so many great minds are swooped into the online advertising
industry.

The lure of money is too strong.

------
pdog
_> Thanks to increases in computing power, Sentient can squeeze 1,800
simulated trading days into a few minutes._

How is it possible to generate seven years of convincing sample data from
historical trading data without overfitting your models?

~~~
problems
Probably by testing against other data to make sure you're not overfit. Though
it looks like they're not profitable currently, so... maybe they just don't.

------
perlpimp
fwiw [http://www.forbes.com/sites/rickferri/2012/12/20/any-
monkey-...](http://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-
beat-the-market/#85db6466e8b6)

------
kiernanmcgowan
I'm having flash backs to xkcd:

[https://xkcd.com/1570/](https://xkcd.com/1570/)

------
samfisher83
Renaissance Technologies, DE Shaw, etc. wall street. Wall street is usually on
the forefront on using math, technology, etc. to make trades. Sometimes the
models end up causing calamity as well.

------
CuriouslyC
The problem with algorithmic trading is that markets are complex systems. As
an algorithm is adopted, it changes the dynamics of the market, and the result
the assumptions it was based on tend to no longer hold. Note that humans trade
via implicit algorithms, which is part of the reason why consistently
outperforming the market is highly unlikely.

In my opinion, the whole idea of investing to try and maximize profits is
myopic. The real reason to invest should be to gain a measure of control over
the corporation being invested in. This suggests that the board should play a
more active role in the governance of corporations.

People who just want to make a buck off a corporation should be limited to
providing debt financing.

~~~
BickNowstrom
Let's assume your algorithm moves the market: 1) This is not a big problem:
Lots of machine learning and control theory involves dealing with feedback
loops. 2) If it moves the market in a predictable way, you can use this to
make money.

The Western world is capitalist, not a Platonic ideal. Even if you strongly
feel that people should have different reasons to invest, you will not be able
to sway them (unless you can show that your alternative makes them even more
money).

If you claim that long-term outperforming of the market is highly unlikely,
you contribute outperforming to short-time flukes: The stock market is
essentially unpredictable or in perfect equilibrium.

Unpredictability implies all these hedge funds would do better consulting
random number generators, instead of well-paid quants.

Equilibrium implies the current market is operating at maximum efficiency, yet
one currently makes money by exploiting non-equilibrium and erroneous
evaluations.

~~~
CuriouslyC
Point #2 is what I'm talking about. Any algorithm that is going to make money
long term on a large scale has to be inherently unpredictable, which is
difficult if it is an algorithm that predicts the future state of the market
from past data.

Sure, the world is less than perfect in a lot of ways. In most cases we try
and fix it. Why is capitalism the one way where we say "oh well, that's just
how things are" ??

Research has demonstrated that barring insider information, random stock
picking often outperforms "experts".

I believe the market is fairly efficient, and people who make money are either
lucky or are leveraging short term information differentials, which in today's
hyper-connected society are going to become increasingly rare (barring insider
information, again).

------
growt
I just started reading 0 to 1 and I think according to Peter Thiel this news
sums up everything that is wrong with the world in one sentence :)

~~~
fahadkhan
care to elaborate?

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sunrisetofu
There's this thing called data snooping bias, I hope these GA folks recognize
that.

As trading goes, past performance does not equate future performance.

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99_00
Hedge funds need other people's money to make money. So I assume everything
they make public is PR and marketing.

