
How D.E. Shaw's Wall Street Geeks Overtook the Paypal Mafia - infinite8s
http://www.forbes.com/sites/nathanvardi/2015/10/01/the-d-e-shaw-mafia-2/
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cperciva
In the mathematics community, D.E. Shaw is famous for hiring people who do
well in mathematics competitions. While they were never identified explicitly,
I had an amusing phone call after the first time I wrote the Putnam, which I
have to assume was from one of their recruiters. As closely as I can remember
it:

    
    
        Recruiter: I understand that you did very well on the Putnam competition.
        I work for a company in New York which is looking for mathematicians, and
        we always find that people who do well on the Putnam work out very well
        here.  Are you interested in finance at all?  Have you found a job yet
        for after you graduate?
    
        Me: Uhh... you do realize that I'm only 15 and won't finish high school
        for another two years, right?

~~~
bbgm
Back in the day I used to be in awe of DE Shaw. When a hedge fund billionaire
publishes papers like this [1] you do end up admiring the fellow.

1\.
[http://onlinelibrary.wiley.com/doi/10.1002/jcc.20267/abstrac...](http://onlinelibrary.wiley.com/doi/10.1002/jcc.20267/abstract)

~~~
cperciva
My stock answer when hedge fund recruiters email me is "if I wanted to be a
quant, I'd work for DE Shaw". Everybody seems to understand that response,
interestingly enough.

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nostrademons
This article smells like a P.R. hit for Two Sigma Investments. Note that they
list 4 billionaires from D.E. Shaw: David Shaw (founder), Jeff Bezos (founded
Amazon.com)...and the two Two Sigma founders. The link to Two Sigma is the
only link that appears in the piece. And if you look up Two Sigma, they are
hiring aggressively, and almost all of their other appearances are glowing
articles in Forbes.

~~~
mrcrassic
I worked for Two Sigma for about a year. They've been on a hiring spree for
years, and I understood why: they're trying to build Amazon-level technology
for just them.

Excellent company to work for; highly recommend them!

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HiLo
I would take the most talented from Wall Street over the most talented from
Silicon Valley any day of the week. Furthermore, while SV has its VCs, their
AUM and returns are laughable compared with almost any other strategy. Cold
hard truth is most Wall St types see SV as a backup, not something to aspire
to.

I'd also like to point out that DE Shaw has essentially been using machine
learning and advanced statistical analysis applied to markets for a long, long
time. I wonder where Bezos got the idea :)

~~~
zeeshanm
In finance you don't create any value. It's pretty much a zero-sum game. I
never understood why money is the biggest motivator for a lot of people. So
absurd.

~~~
thibautx
To think of finance (or more specifically, trading/investing) as well as
financial products/derivatives as a zero-sum game is pretty naive.

A simple example to illustrate my point:

Let's say we have a corn farmer whose crops will come in 4 months. He can buy
(or sell) futures contracts/options contracts to guarantee that he can sell
his corn for today's market price, in case the price of corn goes down. If the
price of corn is up in those 4 months, he can let the contract expire
worthless. If the price goes up, he loses the $ he paid for the option
contract and some trader (whose job it is to take the other side of the
position and manage that risk) profits. But, he is happy to have that
insurance despite losing money on that "trade". Financial services extend far
outside of the financial sector and benefits people broadly.

Though for each individual trade, it might seem like a zero-sum game, the
competition between investors and traders allows for efficient capital
allocation and risk management outside of the financial sector. Without
financial services, everyone would be exposed to unmanageable risk and
volatility which is inherently bad for capitalism.

~~~
guelo
The reality is that in any futures market 99% of the trading is done by
speculators and algorithms. The farmer in your example doesn't normally have
the time to keep up with everything going on in the market and will probably
end up being ripped off by fees and expensive derivative products marketed to
them by unscrupulous brokers.

~~~
nostrademons
The interesting thing is that _speculators are an essential part of the
functioning of financial markets_.

A futures contract is essentially an apportionment of risk. When a farmer and
a speculator write a futures contract, the farmer is selling the risk that the
price of corn will be lower than is profitable, in exchange for a guaranteed
profit that is likely to be less than the true expected value of the corn
harvest (hence, "fees and expensive derivative products").

If there's a bumper crop of corn and the true market price is much lower than
expected, then the person who is wiped out is the speculator, not the farmer.
It's much better for society for commodity traders who invested in corn
futures to go bankrupt than for all of its farmers to go bankrupt, because
farmers have specialized knowledge that is necessary for the future production
of corn. In exchange for taking on this risk, they get a profit, which they
may choose to invest elsewhere to hedge the risk.

It's basically the inverse of insurance. The farmer may also choose to take
out an insurance contract that says "In the event of bad weather that causes
my harvest to fail, the insurance company will pay me $X, enough for me to
make good my futures contract with the commodity trader and have enough profit
that I stay in business next year." As a result, he is completely insulated
from events outside of his control, and can focus on what he does best,
farming.

Now, I probably agree that there are (or were, pre-2008) too many people in
the financial markets, and that we got some chaotic behavior that had to be
bailed out by the taxpayers. I also personally chose not to go into the
industry - I started my career in financial software, but decided I liked
making things more than underwriting other people making things. But it's
worth understanding the financial industry's social purpose before condemning
it.

~~~
osullivj
"The time to buy is when there's blood in the streets". Speculators often
function as the buyer of last resort - the only buyer when everyone else is a
seller. That is very a useful role.

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caseysoftware
Focusing all the attention on the three billionaires of Paypal is an odd one,
especially when you consider that the "early employees" bunch is closer to two
dozen.[1]

This makes me think Forbes doesn't understand how an ecosystem works.

While they think the three billionaires are "at the top" of everything, there
are more creators & technologists, marketers & promoters, lawyers & advisors,
and a dozen more roles that the Paypal mafia fill for each other and others.
And that's not even considering the network effect of so many people with
long/old working histories together.

1:
[https://en.wikipedia.org/wiki/PayPal_Mafia](https://en.wikipedia.org/wiki/PayPal_Mafia)

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chollida1
Doesn't using the number of billionaires produced seem like a weird measure to
use for who is "better"?

Especially, considering only one of the 7 people became a billionaire directly
from working at either company?

If anything, this small data set just helps reinforce the idea that incredibly
successful people don't just appear, they have a long history of being top
performers.

~~~
DannoHung
More to the point: Access to money begets money.

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flavor8
I can add a little more to this. Before founding Two Sigma, Siegel co-founded
an online bookmarking company - blink.com
([http://www.adweek.com/news/advertising/iq-news-cool-tool-
thi...](http://www.adweek.com/news/advertising/iq-news-cool-tool-think-
blink-38487)). It was pretty good for its time, but ultimately died soon after
the 2001 bust. He could probably have gone back to Shaw (or a similar fund)
after that - which would have been the safe move - but, luckily for him,
didn't.

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auntienomen
Number of billionaires is a pretty strange metric. Thanks, Forbes.

~~~
Brig303
+1. Then HBS or McKinsey should be in the lead here when compared to any other
organization. Point is that PayPal mafia planted the seeds of the the social
media revolution; unsure if DE Shaw is even a close second on impact.

~~~
xadhominemx
You think so? I count 4 or 5 billionaire McL alumni -- Louis Gerstner
(probably), Michael Pearson (for now), Sheryl Sandberg, George Gillett Jr.,
Silvio Scaglia. Maybe more on an absolute basis, but it's out of 10,000's of
alumni.

~~~
storgendibal
Yeah exactly. McKinsey burns through 100-200 associates a year in the US
alone.

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acchow
Have vapid puff pieces been on the rise in the past couple years?

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sbisker
You bet they have! The reputational risk to a media outlet of writing a
digital puff piece is now negligible; they can basically drive traffic to or
away from it as they please. There are also real SEO benefits to mediocre
pieces beyond ordinary daily readership.

