WHY ONLY SORBONNE-EDUCATED, LITERATURE PH.D.S SHOULD CUT
YOUR HAIR
You get a haircut every few weeks. Everyone does. Men,
women, children. Even balding men need a trim occasionally (as I’m finding out,
sadly).
But what if I told you that you’ve been doing this all
wrong?
What if I told you that your barber, or hairdresser, is
terribly under-qualified. That you have been risking your hair — which is just
a few centimeters from your brain, after all — to an under-educated,
under-trained amateur.
What if I insisted you were making a huge mistake in your
barber choice. Instead of your current choice, you should choose another kind
of haircutter. A better one. This one should be qualified. He (or she) should
be properly educated. He should hold a Ph.D.
In Comparative Literature.
From the Sorbonne.
If I told you that, what would you say?
You’d say I was crazy.
Because having a Comparative Literature degree from a French
university has absolutely nothing to do with how you perform at cutting hair.
Of course.
But wait a second. Such “crazy” advice is given to us every
day. Very smart people, with net worths of millions of dollars… even billions
of dollars… regularly follow similar advice.
I’m speaking about the hedge-fund industry. This is an
industry that manages almost a trillion dollars of civilization’s wealth. The
role of the hedge fund is to produce “alpha” — a fancy way to say that it is
asked to produce “market-beating returns.” If you are a wealthy person who,
over her lifetime has earned ten million dollars, you prefer not to leave all your
cash sitting in a bank, earning negative interest rates, after inflation. You
want your wealth to earn a return. And so you give a portion of it to a hedge
fund.
Thus the “hedge fund industry” plays an important role in
the financial world.
You would think, wouldn’t you, that the people who run hedge
funds would want to hire the most talented traders and analysts to work at
their firm. You would think that hedge-fund customers would insist upon such a
thing. You would think that hedge-fund hiring departments would scour the
world, looking for smart people who have creative and interesting ideas about
how to manage money — how to create those market-beating returns while
controlling risk.
Except… none of this is true.
In fact, the world of hedge funds is bizarrely insular. If
you do not live in New York, if you do not live in London, if you did not win
the birth lottery by being born in an English-speaking country, if you did not
go to Harvard, if you did not get a job at Goldman… well, then, good luck getting
a job at a hedge fund. I suppose you can apply, but… don’t let the door hit you
on the way out.
Which is strange, when you think about it, because all those
qualities: where you live, what language you speak, what name is on your
diploma, whether you held a job at Goldman Sachs — all of those things are
entirely unrelated to how you will perform as a trader or investor.
In other words, the hedge-fund industry operates as if it
thinks all hair-cutters must hold Literature Ph.D.’s from the Sorbonne.
Everyone in the industry knows this is absurd — that the
performance of any new hire is orthogonal to where a person went to school, or
even if he did; or to where a person held her last job.
I’ll take this a step further. Really smart hedge-fund
operators ought to know that hiring one more me-too Harvard ex-Goldman prop
trader will generate, at best, me-too performance. Every Goldman clone will
have similar “ideas,” will look in the same places for financial opportunities,
will pile into the same lame trades, will follow the same stampeding herd.
Here’s an idea. What if we hired hair-cutters who were actually
good at… cutting hair?
My company, Collective2, has a mission. It’s a simple one.
We are going to destroy the entire hedge-fund industry. We are going to tear it
down, burn it to ash, plow salt into its earth.
We think that anyone can generate alpha.
No, not that everyone can… simply that anyone might:
1.
That
guy in India, who didn’t win the lottery by being born near Manhattan, but who
can code algos to predict market movements.
2.
That
doctor in Boston, who has a full time job helping humans live longer, and who
has utterly no desire to work at a hedge fund, thank you very much; …but who
notices that one particular pharma company’s sales reps seem to be applying
high-pressure sales tactics, and who therefore decides to short its stock.
3.
That
Chicago-School economist, whose ten years of research have shown him that
cartels inevitably collapse, and who therefore shorts oil futures, knowing that
OPEC’s latest “production quota” announcement is just a bunch of hot air.
Here’s the thing about trading performance. It’s the one job
in the world where it’s obvious who’s good at it, and who’s not. You simply
look at the person’s track record. Nothing else matters. Not where a person
lives. Not which company he worked at five years ago. The performance matters.
That’s it. Period. Full stop.
Source Collective2.com. Reproduced with permission.
This article is also concluded with 3 more quotes:
“… Don't personify the
markets. Anger is an interpersonal emotion. We are usually angry with someone because
we believe that he or she has purposely tried to harm us. The markets may
consist of people making trades, but it doesn't make sense to make up imaginary
relationships with the markets. There is nothing that is personal going on. You
are merely making it personal, and taking setbacks personally, as if someone
were out to wrong you. The people participating in the markets may engage in
actions that thwart your goals, but their actions are not directed toward you
personally. It is best to look at the markets as an abstract impersonal entity.
Pretend you are playing a videogame. The more impersonal you can make trading,
the better you will feel, and the more profits you'll realize.” – Joe Ross (Source:
Tradingeducators.com)
“There is a
fundamental disconnect between the reality of trading and the academic and
regulatory interpretation of how markets should work in a bubble.
Unfortunately, too many traders get sucked into the complexities of academia
and think that such intricacies are the ticket to their salvation. As always we
come back to the notion that trading is a simple affair that is driven not by
what the market does but by your reaction to it.” – Chris Tate
“By
design, my trading system produces a highly asymmetric return with 80% of my
total gains coming from 20% of my trades. Since the majority of profits from
the system come from a minority of trades, missing out on just one could be a
costly error as it could become one of the most profitable trades.” – VTI
Traders’ realities: Traders' Mindset
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