The video explores the intriguing world of quants, specialized nerds who have revolutionized the finance industry. It dismantles common stereotypes about Wall Street traders, showing that the true game-changers in finance are the quants, using complex mathematical algorithms and cutting-edge technologies. These enigmatic individuals are deeply involved in quantitative strategies across various financial sectors, predicting future values of various financial products and thereby generating significant financial returns.

The video delves into the origins and evolution of quant trading, highlighting notable figures and pioneering firms, such as Jim Simons and Renaissance Technologies. Despite their considerable influence, the quant industry maintains a veil of secrecy, often operating away from the public eye. The discussion also touches on the potential risks posed by algorithmic trading, including unpredictability and potential "doomsday scenarios," cautioning against over-reliance on these technologies.

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Key Vocabularies and Common Phrases:

1. quantitative [ˈkwɒntɪˌteɪtɪv] - (adjective) - Relating to the measurement or quantity of something rather than its quality. - Synonyms: (numerical, statistical, measurable)

Kind: captions Language: en Quants short for quantitative

2. securities [sɪˈkjʊərətiz] - (noun) - Financial instruments that represent some form of financial value, such as stocks or bonds. - Synonyms: (stocks, bonds, equities)

These quants use financial models to try to pin down the future values of securities.

3. algorithm [ˈælɡəˌrɪðəm] - (noun) - A process or set of rules to be followed in calculations or other problem-solving operations, especially by a computer. - Synonyms: (procedure, formula, method)

Renaissance Technologies is a trading firm who embraced algorithms years before everything else in the world embraced algorithms.

4. predictive [prɪˈdɪktɪv] - (adjective) - Being able to declare or indicate in advance what will happen as a result of known previous data. - Synonyms: (prophetic, forecasting, anticipatory)

A signal in the market is just anything that can happen that we think is predictive of something else.

5. pioneer [ˌpaɪəˈnɪər] - (noun) - A person who is among the first to explore or develop a new area of knowledge or activity. - Synonyms: (trailblazer, innovator, originator)

He’s among the pioneers of this quantitative push.

6. medallion [məˈdæljən] - (noun) - A large medal, typically made of metal and used as an award or decoration. - Synonyms: (badge, plaque, insignia)

And his firm, it’s called Renaissance Technologies, and the key hedge fund, medallion, is the greatest moneymaking entity Wall Street’s ever seen.

7. secrecy [ˈsiːkrəsi] - (noun) - The action of keeping something hidden or the state of being kept secret. - Synonyms: (confidentiality, privacy, discretion)

It turns out the secrecy that defined Renaissance is actually quite characteristic of the quant industry in general.

8. mathematicians [ˌmæθəˈmætɪʃənz] - (noun) - People who specialize in the field of mathematics, focusing on numbers, data, quantity, structure, space, and change. - Synonyms: (scientists, calculists, numeralists)

He was one of the few early mathematicians who brought their talents from the halls of academia to Wall Street in the sixties and seventies.

9. fund [fʌnd] - (noun) - A large sum of money that has been set aside or is being used by an organization or for a specific purpose, such as investing. - Synonyms: (capital, reserve, resource)

Today, quantitative strategies are incorporated across the financial industry, But when people say quant, they're probably referring to the most famous types: traders and researchers at fancy hedge funds and investment firms like Jane Street, Citadel and Two Sigma

10. doctrinaire [ˌdɒktrɪˈnɛər] - (adjective) - Dogmatic about one's beliefs or practices, often to the point of being inflexible. - Synonyms: (dogmatic, rigid, inflexible)

It’s sort of like the boogeyman today where everybody, if you can’t figure out why the market moves, then it’s gotta be the quants.

What do Wall Street quants actually do?

Quants short for quantitative. They're a special type of nerd that has come to invade our beautiful world of finance. I have always imagined the classic Wall Street trader to be your typical, handsome fella who knows how to handle the cross stick and a non-disclosure agreement. But lately, it's come to my attention that the real wolves of Wall Street are not charismatic Buck Mason bros, but instead this army of reclusive dweebs who are pulling in fat salaries and wrestling with complex mathematical algorithms that would make my old buddies on the trading floor commit seppuku inside of a Just Salad.

Learning about quants folks has truly turned my world upside down. So put on your sweatpants, pick up your calculators, and leave those boat shoes in the mudroom. We're about to learn. How. Today, quantitative strategies are incorporated across the financial industry, But when people say quant, they're probably referring to the most famous types: traders and researchers at fancy hedge funds and investment firms like Jane Street, Citadel and Two Sigma.

These quants use financial models to try to pin down the future values of securities, commodities, currencies and all types of financial products. And it's a job usually given to young people fresh out of top tier schools and seasoned from years of math competitions and Adderall. and it's these people who generate a lot of moolah and a lot of buzz.

What exactly is a quant? What's a quant? The pinnacle of finance? They get paid a lot. like $5,000. $250 an hour $500k to $700k total comp how do I become a quant? That's my quant. Your what? My quantitative. My math specialist. Look at him. You notice anything different about him? So who exactly are the people behind the monitors?

I spoke to some Smarties who have been inside the world of quant in various ways, some of whom prefer to stay anonymous, but none of whom were afraid to give it to Papa Journalism fast and straight. What do quants actually do? Right...umm... Code. And do maths. Well, great. This has been a lovely interview A lot of math and a lot of computer science.

As a quant - a signal in the market is just anything that can happen that we think is predictive of something else. The signals that quants excel at are things that your average banker would never in a million years notice. Things that are buried into the math. Stuff you can only find with big amounts of data analysis and- machine learning.

There’s huge amounts of research on being able to predict the weather in like Nebraska five days from now because if we figure out that it’s gonna be three degrees hotter than it actually like- the weather forecast predicts then we know that a pipeline that’s carrying oil from the Northeast to Texas going through Nebraska might cost an extra ten microcents per liter so we can you know, adjust those markets ever so slightly.

I obviously had no idea what he was talking about. So to learn more about how the hell bookworm freaks like him ended up in finance, I had to go back to the beginning, which for quants means the Renaissance technologies. Renaissance technologies. leader of the quant trading movement and founded in 1982. Renaissance Technologies is a trading firm who embraced algorithms years before everything else in the world embraced algorithms.

Renaissance’s king dork Was Jim Simons one of the few early mathematicians who brought their talents from the halls of academia to Wall Street in the sixties and seventies. Yeah so he’s a pioneer. I wouldn’t say THE pioneer, the only pioneer, he’s among the pioneers of this quantitative push Gregory Zuckerman is an investigative reporter at the Wall Street Journal and author of The Man Who Solved the Market, a Biography of Jim Simons.

If he had only done mathematics He’d be worthy of a book and all kinds of recognition. And he gave it all up to go into trading and investing. And his firm, it’s called Renaissance Technologies, and the key hedge fund, medallion, is the greatest moneymaking entity Wall Street’s ever seen. Their average returns are 66% a year over many, many decades.

For context averaging 66% in returns is literally better than any investor you've ever heard of. Warren Buffett. Ray Dalio. Wilmer Guffins. George Soros. Literally, none of these guys even came close to that number. Not even the one I made up. But why then, isn't Slim Jim as big of a name as these guys?

He was very secretive. He didn’t want the acclaim, If anything, he avoided it. It was a really difficult project to write this book. People weren’t allowed to talk to me. They’re not allowed to talk in general. They have these really thick NDAs. And it turns out the secrecy that defined Renaissance is actually quite characteristic of the quant industry in general.

They’re worried someone’s gonna pick up on some of their secrets. They don’t let people talk, and they sue you if you go to another firm. So if you’re, you know going on yapping about you know, this wacky new trading strategy you found they’re gonna go implement it at their firm and you’re gonna lose all your edge because- you can’t have edge in the market when everyone knows what you know all of the value is to be had in being the only one that knows what’s going on in that specific scenario.

Fortunately for these firms under the radar is how their mathletes like to operate. These are academics, these are kinda quirky people. They’re not people that bask in the limelight. They run from the limelight. So I enjoyed solving maths as a kid. I used to enjoy the process of being able to apply some solution and get some exact answer and know it was correct.

I enjoyed having to think about-- kind of work out the puzzle. And I think after a while you can kind of get addicted to that feeling of trying to solve these problems. You’re not really motivated as much by money even though money is certainly a part of it. These are people who just wanna solve basically interesting problems but I think it’s a completely different motivator in some ways than other parts of the banking world.

I mean, I'm sure the salary doesn't doesn't doesn't hurt either, I imagine. Right, right, right But even if these basement lurking money droids don't seek the limelight, the limelight has certainly found them. By 2017, quantitative funds accounted for over a quarter of all U.S. stock market trading and unlike Like the Ivy League of a Cappella Wars of 2013. I'm not the first one to report on this.

Quants becoming a central player in finance. is old news. But as the amount of the market that we're putting into the hands of computers continues to grow, and as computers become more powerful, fear around algorithmic doomsday scenarios grows as well. Today, parts of these advanced programs are so-called black boxes, meaning we don't always know why algorithms recommend certain trades.

Also people are worried about fun stuff like AI going off the rails and making rogue buy and sell decisions. then there's stuff that's already happened. For example, in August 27, billions of dollars evaporated from the largest hedge funds after an algorithmic fire sale or maybe you look at what happened in when an automated trading software rapidly sold a shit ton of futures contracts to do with the S&P 500 and erased $1 trillion in market value

I remember that day well before dawn. I was lying in bed next to my second wife, my eyes wide open, peering over a field of frosted grass outside of our window. And I said, Honey, I don't know what it is, but I feel like $trillion in market value will be erased from the S&P 500 today. And then she said, Hush, Dan, I'm dreaming of a man who can make me climax.

You know, we stayed together for three years after that, but in that moment I knew the relationship was over. It’s sort of like the boogeyman today where everybody, if you can’t figure out why the market moves, then it’s gotta be the quants. That’s sort of like the instinctive explanation. And I think that’s a little bit unfair.

I don’t think they’re foolproof. I don’t think they’re necessarily so much better than everybody else. But we’ve had panics throughout history in financial markets, so... we’ll have some computer-oriented panics in the future, but we’ve had em in the past as well. So then can I ask, what's your read on the quant industry today? Have most hedge funds embraced quantitative trading as a strategy, So, there are two things when it comes to investing.

There’s the idea of what to buy or sell. and there’s how to buy or sell, what we call execution. When it comes to execution, pretty much everybody has embraced quantitative financing. Where to allocate, how to break up the trade so it doesn’t move prices around... When it comes to the idea-- the genesis, the thesis of what to buy-- not everyone has embraced it.

Not everyone should embrace it. Even the Renaissance people believe in man plus machine kinda thing. Or more machine plus man. So what do quants actually do? Well, they do a more precise academic version of what we all do in this green flat Amex card shaped world of finance. They speculate. They gamble. try as hard as they can to turn uncertainties into certainties all in the glorious name of get in the bag.

These robots just do it with higher IQ, better degrees and more advanced tools than the rest of us quants, believe it or not. your people, too. And I'm sorry for ever judging you for good work. I'm Dan Toomey. But surely this world of quants wasn't beyond the grasp of a man like myself. So I had one of my anon quants engage in a roleplaying exercise where I pretended to be them and they pretended to be a higher up at an elite quant trading firm. Somehow this wasn't sexual.

Hey Dan ummm the ultima for uhh PLTRs a little bit lagging behind the uhh the polynomial fit we ran the GBU on do you have any idea of how we could you know better implement like a decay skewed Black Scholes on this or something? I think there’s some sort of like Stochastic drift I’m not catching in my model. Yeah I can look at that.

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