Author Topic: Are Renaissance Technologies just trend followers?  (Read 1081 times)

RuleNumberOne

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Are Renaissance Technologies just trend followers?
« on: November 09, 2019, 10:26:21 AM »
From the book:

"In January 2000, Medallion made 10.5%. By March 2000, the fund was sitting on over $700 million of profits...Then came true trouble...The tech bubble burst on March 10....Medallion lost about $90 million in a single day in March; the next day it was $80 million more.

Medallion's losses now approached $300 million....Medallion trades about eight thousand stocks. There was no way they could quickly revamp the portfolio.

After several more all-nighters, a couple of researchers developed a theory about what was causing the problems: A once-trusted strategy was bleeding money. It was a rather simple strategy - if certain stocks rallied in previous weeks, Medallion's system had taught itself to buy more of the shares, under the assumption the surge would continue. For several years, this trending signal had worked, as the fund automatically bought Nasdaq shares that were racing still higher. Now the system's algorithms were instructing Medallion to buy more shares, even though a vicious bear market had begun."


RuleNumberOne

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Re: Are Renaissance Technologies just trend followers?
« Reply #1 on: November 09, 2019, 10:35:29 AM »
I think their returns just came from writing software for momentum trading. By automating trend following, they were able to do it more thoroughly than other hedge funds doing it the old-fashioned manual way.

I think it also allowed them to change directions very rapidly compared to the manual approach.

Which also means their returns must have gone down in recent years compared to the past as other automated trend-following funds came into existence.

Looks like they traded EVERY stock in the market. Out of the 8000 stocks they traded in 2000, I think 7000 would have prices moved by a big fund like Medallion/Renaissance alone. When other automated trend following funds entered who were also able to change directions instantaneously, their returns should have gone down.

It makes sense that 90% of the trading in the stock market is done by "algos".

RuleNumberOne

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Re: Are Renaissance Technologies just trend followers?
« Reply #2 on: November 09, 2019, 06:52:18 PM »
Greg Zuckerman, the author of the Jim Simons book says the people at Medallion believed the individual investor who did a buy-and-hold was not losing to Medallion, but instead it was other hedge funds that were on the losing end of Medallion trades.

Medallion made 98% in 2008. You needed a machine to make 98% in the 2008 rollercoaster. And I think it is the emotional individual investor who loses to the machines.



muscleman

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Re: Are Renaissance Technologies just trend followers?
« Reply #3 on: November 09, 2019, 07:52:49 PM »
From the book:

"In January 2000, Medallion made 10.5%. By March 2000, the fund was sitting on over $700 million of profits...Then came true trouble...The tech bubble burst on March 10....Medallion lost about $90 million in a single day in March; the next day it was $80 million more.

Medallion's losses now approached $300 million....Medallion trades about eight thousand stocks. There was no way they could quickly revamp the portfolio.

After several more all-nighters, a couple of researchers developed a theory about what was causing the problems: A once-trusted strategy was bleeding money. It was a rather simple strategy - if certain stocks rallied in previous weeks, Medallion's system had taught itself to buy more of the shares, under the assumption the surge would continue. For several years, this trending signal had worked, as the fund automatically bought Nasdaq shares that were racing still higher. Now the system's algorithms were instructing Medallion to buy more shares, even though a vicious bear market had begun."

Which book are  you referring to?
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RuleNumberOne

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Re: Are Renaissance Technologies just trend followers?
« Reply #4 on: November 09, 2019, 07:59:46 PM »
The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution
by Gregory Zuckerman

From the book:

"In January 2000, Medallion made 10.5%. By March 2000, the fund was sitting on over $700 million of profits...Then came true trouble...The tech bubble burst on March 10....Medallion lost about $90 million in a single day in March; the next day it was $80 million more.

Medallion's losses now approached $300 million....Medallion trades about eight thousand stocks. There was no way they could quickly revamp the portfolio.

After several more all-nighters, a couple of researchers developed a theory about what was causing the problems: A once-trusted strategy was bleeding money. It was a rather simple strategy - if certain stocks rallied in previous weeks, Medallion's system had taught itself to buy more of the shares, under the assumption the surge would continue. For several years, this trending signal had worked, as the fund automatically bought Nasdaq shares that were racing still higher. Now the system's algorithms were instructing Medallion to buy more shares, even though a vicious bear market had begun."

Which book are  you referring to?

muscleman

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Re: Are Renaissance Technologies just trend followers?
« Reply #5 on: November 09, 2019, 10:42:45 PM »
Thank you!
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cherzeca

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Re: Are Renaissance Technologies just trend followers?
« Reply #6 on: November 10, 2019, 02:34:16 PM »
need to read new book, but the best performing quants are arb traders not momentum traders.  see ed thrope, a man for all markets

cameronfen

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Re: Are Renaissance Technologies just trend followers?
« Reply #7 on: November 10, 2019, 04:55:55 PM »
need to read new book, but the best performing quants are arb traders not momentum traders.  see ed thrope, a man for all markets

I may be wrong but I don't think arb trading scales all that well, which I think all the big names are trend followers, or at least even the big firms that started off arb trading jave branched into trend following. 

muscleman

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Re: Are Renaissance Technologies just trend followers?
« Reply #8 on: November 10, 2019, 07:53:52 PM »
The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution
by Gregory Zuckerman

From the book:

"In January 2000, Medallion made 10.5%. By March 2000, the fund was sitting on over $700 million of profits...Then came true trouble...The tech bubble burst on March 10....Medallion lost about $90 million in a single day in March; the next day it was $80 million more.

Medallion's losses now approached $300 million....Medallion trades about eight thousand stocks. There was no way they could quickly revamp the portfolio.

After several more all-nighters, a couple of researchers developed a theory about what was causing the problems: A once-trusted strategy was bleeding money. It was a rather simple strategy - if certain stocks rallied in previous weeks, Medallion's system had taught itself to buy more of the shares, under the assumption the surge would continue. For several years, this trending signal had worked, as the fund automatically bought Nasdaq shares that were racing still higher. Now the system's algorithms were instructing Medallion to buy more shares, even though a vicious bear market had begun."

Which book are  you referring to?


Thank you! I just picked up the book. I'll read it.
I have a feeling that the fact that they started to publicly talk about their strategies is a hint that their strategies stopped working that well, which seems to be indeed the case for their new institutional equity fund.  :)


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Liberty

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Re: Are Renaissance Technologies just trend followers?
« Reply #9 on: Today at 10:28:43 AM »
Nothing these guys do is "just" something. Otherwise everybody else would do it.
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