Resenhas
A Shot to Save the World: The Inside Story of the… de Gregory Zuckerman
The book itself was enjoyable as the suspense and personalities involved in the drama of tackling the financial markets from a different strategy kept me interested in discovering the next turn. Almost like a real crime mystery book. The quants did seem to prevail and of course we still don't know exactly how they did it as the book does not really go there.
It winds up with the creator of the funds Jim Simon seemingly sailing off into the sunset as he approaches his 90's, a chain smoker at that! I found it amusing how he portrays this liberal bent of lets make everyone pays their fair share for the good of the down trodden. Yet they really didn't as the exploited every loophole they could to keep those riches in their own pockets. And well lived lives of luxury beyond luxury on the spoils of their gains.
I would recommend this to people who are interested in Biographies, Investment, Wall-Street.
Deus Vult,
Gottfried
Zuckerman gets into a lot more detail about Renaissance's models than I expected him to. I guess by now there are enough ex-employees willing to share company secrets. Or maybe the company secrets they are willing to share are not that big anymore: using Markov chains to model price movements, looking for price ratios instead of absolute prices, etc. Whatever is happening at quant funds right now is probably way beyond any of that (convolutional neural networks that count cars in Walmart's parking lots, that sort of thing).
I was ready to roll up my sleeves and start modelling stuff, but fortunately I got to this point in the book first: "In the five years leading up to spring of 2019, quant-focused hedge funds gained about 4.2 percent a year on average, compared with a gain of 3.3 percent for the average hedge fund in the same period." Well, the S&P500 yields on average 9.8% a year (6% after inflation). For Simons to get his average 66% yearly return he had to hire a team of geniuses. I'm no genius, and I'm not in a position to hire any geniuses to work for me, so I guess I'm staying with index funds (except maybe for some "fun money").
Overall this is a well written, well researched book, and I got a lot out of it.
This is more about the people and the business, not about the technology or decisions made, but there was enough of an overview of how things evolved to be interesting. I wish I'd worked at a business like this in the late 90s/early 00s on the data/infrastructure team -- sounds amazing!
Interesting tidbits: traders were benchmarking themselves against Madoff and coming up short -- only to find out years later that it's because Madoff was a ponzi scheme.
RenTech was mostly closed to outside money in the early 2000s, so it was essentially trading for employee benefit. There were much larger longer-term funds running concurrently open to the public, but the employee fund was vastly more successful.
There were political problems with Robert and Rebecca Mercer -- while most people were leftists, Mercer was conservative and somewhat of a troll, and when he overtly supported Trump/Breitbart/etc. there was pushback both internally (which was largely ignored) and from the outsider public (also somewhat ignored). An employee (David Magerman) went against him and RenTech in the press and was fired, things escalated, and then at some point LPs in one of the funds started complaining as well, so Mercer left stepped down as CEO.
It's an interesting topic, but I'm afraid the book isn't that enjoyable to read because of the way it's structured. It seems to be somewhat of a rush job, as if being the first book on the topic was more important than being a good book on the topic. There are many repetitions (I don't know how many times the book mentions that Mr Paulson uses the bus every now and then) and a lot of the content seem to be filler text, listing participants on various parties in the financial aristocratic circles.
What this book doesn't talk about is the "subprime loans" (loans to people that can't afford the loans, and therefore charged a higher interest) and how they came to be. There are a few (one or two) examples of real people that ended up with loans they really couldn't afford but not many details and while the book, or people in the book, blame the legislation, there are not many details.
Still, I've given it three stars out of five, but that is mostly because I don't know in what other book I could have had this information.
I would recommend this book as it has a very powerful message. Strongly toward women. Nonetheless, it sends a message that it doesn't matter what gender, background, or color you are, you can achieve greatness just like everyone else. This speaks to me greatly, not just because I am female, but because it speaks volumes about how people are made to feel bad about themselves for being different. Which, at least in my opinion, I think everyone can relate to. In addition, I truly believe this book is a positively amazing read because it motivates and encourages anyone and everyone to be their best self. Not only that, but it lets everyone know that it's ok to be you and only you. Which, I think, is the most important lesson that any one of us can learn in our short and precious lifetime.
In the book, Rising Above Inspiring Women in Sports tells of real-life stories of female superstar athletes Simone Biles, Venus and Serena Williams, Carli Lloyd, and many more role models. Simone Biles grew up with only her mother, which had addiction issues, and soon went to live with her grandparents. Simone soon discovered her talent for gymnastics, doing tricks on balance beams and mats, which quickly lead her to a life filled with Olympic greatness. Venus and Serena Williams had to conquer racial barriers in tennis for them to come out as legends. Carli Lloyd has praised all her life for her incredible talent in soccer, but as soon as she entered a world with other talented players she lacked and was cut from the team. Instead of quitting, Carli built her confidence back up and went on to become one of the leaders on the World Cup Champion US Women's Soccer team. Elena Delle Donne was impacted by the needs of a family member and Bethany Hamilton faced serious setbacks like many others. All of these athletes and many more in the book faced their challenges head-on and they ultimately emerged as inspirational leaders.
Opinion Paragraph:
In the book, Rising Above Inspiring Women in Sports, each story has a common theme of turning to others for help. This isn't a sign of weakness as one may think, this is a sign of integrity and being honest with yourself that you need help from others. This theme sets a good example for young athletes and for them to ask for help when needed. The books may also help athletes realize their successes and failures and for them to be honest with themselves. In conclusion, this book gives any person of any age self-empowerment and is a source of inspiration.
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KEdwards.ELA4 | 1 outra resenha | Jan 7, 2020 |
KEdwards.ELA4 | 1 outra resenha | Jan 7, 2020 | I picked up this title because I wanted to learn more about quant investing—something I've been hearing about for years but not something I've ever carefully researched. I felt like this book served as a decent non-technical introduction.
The basic approach of quant investing is to do statistical analysis of a massive set of data. Because short-term trends have more data points to work with, it is easier to come out ahead in short-term trades. Quant funds look to do high volumes of trades and come out ahead a very small percentage of this time. Like many other modern funds, this makes them reliant on high degrees of leverage to get a good return on capital.
There is something fascinating about the investing approach that emerged out of Renaissance's work—they don't have stories about why most of their investment strategies work. Zuckerman quotes statistician George Box; "all models are wrong, but some are useful." We're constantly seeking out stories about why the world is the way it is. Although we can derive meaning from these stories, when it comes to something as complex as investing, it is often more limiting than useful to rely on stories for why things do or don't work. It is the sort of approach that would only emerge in a fund staffed by scientists and mathematicians.
For many years, Renaissance hasn't allowed any outside investors in its flagship fund, Medallion; it is all money from employees (the fund is limited to $10 billion, and even with massive fees of 5% of principle and 40% of returns, it regularly needs to return investor funds). Often times hedge funds are considered to epitomize what is wrong with the financial system. The fact that Renaissance's most profitable fund doesn't even allow outsiders (who would need to be phenomenally wealthy to participate in the first place), highlights the madness of the current state of wealth inequality in the world.
The end of the book explores the ironic political dimensions of Renaissance. Jim Simons is a Democrat, and was one of Hillary Clinton’s largest campaign donors in 2016. At this point in the company’s evolution, Simons had stepped down from the CEO role, and one of the new Co-CEOs was Bob Mercer. Mercer just happens to have been Trump’s largest donor in the 2016 cycle, and also was an investor in Breitbart and Cambridge Analytica, along with his daughter Rebekah. More than anything else, this highlights that both the Republican and Democratic parties represent the shared whims of the neoliberal elite rather than some significant portion of the populace.
The book is an interesting portrait of one of the most influential financiers of the past generation. That said, it fails to rise to the bar set by books like “Barbarian’s at the Gate” by Bryan Burrough in that the book lacks a compelling narrative arc.
Player wise, the book focuses mostly John Paulson but also his major analyst Pellegrini, his friendemy Greene as well as Michael Burry and Greg Lippmann (the latter two both covered by the Big Short). What unites all these players is that none were housing or mortgage specialists. Pellegrini was a new analyst hired by Paulson, who only knew what CDSs were from a serendipitous brush of the shoulders earlier in his career. Pellegrini discovered that housing prices were much higher than historical trends, indica of a housing bubble. Paulson was a merger arbitrage specialist, Burry a stock picker, and Lippmann a Deutsche CDS salesman who discovered that contrary to conventional wisdom housing prices, not income, determined default rates (house buyers with extremely high interest rates after teaser rates could refinance because the housing price rose. when housing prices fell, people were unable to refinance their loans and defaulted). Greene was a real estate mogul trying to protect his real estate empire from collapse (he had suffered from a housing bust before). This is a lesson that seems to confirm what Taleb calls the green lumber fallacy. Often those who "know the most" about a subject matter confuse that knowledge with a knowledge of how to profit off movements and trends.
The common thread that runs through their stories are the struggles these investors faced in trying to short the housing market. I think Zuckerman shines the most by writing each chapter as if it was a cliff hanger. In hindsight almost everyone can repeat ad nauseam (at least abstractly) the causes of the crises and how CDSs allowed short sellers to profit from the housing bubble's burst. Zuckerman writes in the moment showing how difficult it was for the investors to reason forward and figure out what seems obvious in retrospect.
First, it was difficult to directly short housing. The classic way of shorting housing, would be to buy a house, sell it and then rebuy when the bubble burst pocketing the profit. Such a strategy is obviously costly and impractical. This was resolved when the CDS was invented, in order to satisfy the demand of investors to match or to hedge CDO returns (this was also the cause of contagion, as many banks were actually the counter party to the short). Not all investors could buy CDS protection either, it was only available to large investors (w/ IDSAs), so getting access to CDSs was difficult for smaller players. Even then the cost of shorting raises as the bubble continues, so calling a bubble is not enough, it's necessary to time the burst correctly. Second, all the investors faced difficulty in raising money. It was difficult to convince people to pony up the money to take advantage of this supposed opportunity, especially when the "experts" were convinced that there was no housing bubble. Fund raising was a serious practical issue, especially for "outsiders" calling doomsday. Burry for example was forced to lock in his clients money, angering many investors including the legendary Greenblatt. Lippmann was mocked widely at Deutsche. Few investors wanted to be locked in a negative carry trade, where losses (the costs of protection) were certain, but gains were speculative. Third, it was difficult to implement the strategy, especially in the face of rising housing prices. Refinancing by home owners, financing by mortgage lenders or acquisitions of failing mortgage lenders reduced the predictability of negative impacts on housing prices. Fourth, many of the shorting instruments were thinly traded (an exception was the ABX index on subprime). This created problems for exiting the position (low liquidity/ blowing up the price if word gets out of exit), as well as valuing the insurance when housing prices did drop. Sometimes it was suspected that banks who wrote the CDS purposefully refused to mark down the prices. Not to mention, the creditworthiness of the counter-parties came into question as the financial sector toppled in 2008 (and it was revealed that it was the banks holding the other sides of those trades). Finally, it was difficult to decide when to exit the trades. Selling the mortgage protection locked in a profit, but at the risk of forgoing further profit. Paulson waited until the housing prices trended very low, risking a rebounce that would wipe out his gains, to sell (he said he remembered that Soros said to "go for the jugular"). An investor who had the disciple, luck and tenacity to weather all those difficulties, without knowing them in hindsight, made a killing in 2007-08.
Zuckerman does a good job explaining all the relevant financial concepts, so that none of the complicated mechanisms get in the way of enjoying the very human drama from Lippmann's understandable but obnoxious boosting to fellow traders when the bubble burst (though ironically, much of his bonus was in deutsche stock that fell afterwards), to Pellegrini's tense relationship with Paulson (Pellegrini never felt secure at the firm, and never felt like he got the respect he deserved, despite Paulson granting him a bonus that ensured Pellegrini would never have to work again). Pellegrini was a brilliant analyst but hot-blooded, often insulting or fighting which made it difficult for him to be promoted. Paulson killed it at school, but itched for that big trade. Paulson was first in his class, and an excellent student but had difficulty striking gold. Few had heard of him before the big trade. Greene was a character all in himself, making his fortune by starting off as a circus ticket phone salesman who would fake accents to curry favor with buyers. Paulson would ask Greene to invest in his fund explaining the basic concept. Greene eventually bought CDSs of his own, straining his friendship with Paulson who considered the move dishonorable. Despite being millionaires, sometimes billionaires, humans seem cursed to be stuck with human nature. Sometimes it's hard to remember that, but this book is a good reminder.
Reading all about the lives of the big-players in the industry was a very interesting experience. Their self-assurance and determination is admirable, and the amounts of money being played with utterly incredible. The book addressed my elephant in the room at the end, the environmental issues associated with fracking. But overall I found the lack of subjectivity in the book a real put off. I like my non fiction to take a stance and argue it. This was more an extended impartial article, and it did a great job of doing just that.
This very select group includes John Paulson, a Wall Street fund manager who pulls off the eponymous trade, making 15 billion dollars for his fund investors, and many billions of his own; Michael Burry, a quirky manager of a smaller fund who nearly goes crazy trying to wait out the crash he knows is coming; and Greg Lippman, a Deutschebank trader whose very own institution is buying up mortgage-backed securities while he foretells their doom.
What do these men have in common? Two things: their open-mindedness in seeing how shaky the subprime mortgage market really was in the mid-2000s, and then their ability to stand firm in the face of almost overwhelming conventional wisdom and market sentiment. Although none of the three comes off as a particularly admirable character, you cannot deny that they all were remarkably steadfast once they realized the truth. And Zuckerman does an excellent job of illustrating how difficult this was in the overheated mania of those years.
The Greatest Trade Ever is a fine read, but if you’re really looking to get your head around the gargantuan mess that is the subprime mortgage crisis, just reading this book isn’t enough; it’s more a character study than an analysis of the crisis itself. I found at least a couple of other books very helpful. First, I’d recommend Thomas Sowell’s The Housing Boom and Bust, and then go on to Michael Lewis’s The Big Short. Sowell provides an excellent overview of the whole sorry situation, with a focus on the government failure at the root of the crisis. Lewis is then excellent as he zooms you into Wall Street to show how the debt instruments were built up – and then came crashing down.
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