Why Independent Quants Don't Exist
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- เผยแพร่เมื่อ 21 ม.ค. 2023
- Why don't independent quants exist? Well it comes down to opportunity cost and scalability. Even with a million dollars and 10% returns (which is higher than average) you would only bring in $100,000 the first year. If you took that $100,000 as a salary and kept investing with a 10% return you only make $100,000. Working for yourself and trading has large risks and fluctuations. Most quants starting their first job will make between $80k-$100k plus a bonus and other benefits like 401k and healthcare. From this perspective it is easier to work for someone else where you are compensated more and have less stress and risk.
Now if you are really good at investing you'll want to scale your operation so you make a lot more than $100k. To do this you'll need investors and this will require other costs such as hiring a lawyer to set up your fund and manage all the investing regulations. As you get more capital you'll also need to hire people to do the accounting, data engineering, trading, and quant finance as you won't have enough time to invest all of the money. Now you end up working for investors and not yourself AND you now will spend most of your time running a firm and not doing the quant finance research unless you find a partner to help with the business side.
Overall people typically end up working for someone else or starting their own firm. Both are from from being independent as you either work for a firm or for investors and both are demanding.
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I know a person who actually is a quant and he work for himself. Yes he is very smart, he knows all the math : Brownian motion, Monte Carlo simulations, SDEs, CUDA programming, etc. But also he has access to a large scale computer system, where he can perform simulations and computations. Because of him I started to look into quantitative finance, I'm not trolling or something.
As I mentioned, I'm sure there are a few who are doing it successfully. I believe you.
Yeah makes sense honestly. If you went to a uni for a little while, did some stuff with your resident supercomputer, etc. you could def get access to those tools.
One of my old bosses said something similar to this (different industry (consulting), but same sort of sentiment): it's easier to do things on a grand scale when you have the backing/resources of a big name
Last year when I left banking a lot of people were asking why I didn't just do my own consulting. This is exactly why I didn't do it.
Economy of scale. Applies to about everything
It's a miracle today such knowledge is available publicly. Thank you so much!
Thanks for being a part of the channel!
seriously!
I suppose there's also the consideration of passive vs active investing. If you have a 10% annual return investing actively, note you could have generated 7% investing in an ETF. As a consequence, you must make more from the extra 3% than you would have made in a regular job. Meaning you would need 3.34 M of capital to boot, assuming you can earn 100k a year as a salary man.
This is another valid point.
Short term capital gains tax
Hi Dimitri! Thank you again for you content. I wanted your opinion on do you think a Stats PhD is adding more value to the skills set to be a quant versus just a Stats MSc?
I’ve graduated from a Maths BSc and is not sure how much more learning I need to truly be ready for being a skilled quant?
For example MSc in Stats & continual self learning on the side
Thanks
Nice, informative video. Thanks!
Thanks for the feedback!
So individual quant trading works, but it’s not ideal and kinda stupid. I guess it is okay to do if you want to test your own model and see if you can beat the markets annual average returns, say ideally your return is 10%, but depending on your initial investment, most cases it’s not enough to live with what you earn. Therefore it makes a lot more sense to work for these institutions which have a higher capital and can afford to pay you 100 grand whilst providing benefits which otherwise won’t be present if you traded by yourself. Amazing video dimitri, you’re the only creator whose videos I don’t skip.
Great video as always Dimitri. I'm wondering, as a recent Finance grad, whether to take a risk management role at a large inter dealer broker or a "financial engineering" role at First Derivatives (provider of high performance time series software- Kx/ kdb+)? I'm thinking purely in terms of career prospects as I would enjoy both.
What did you choose in the end ?
This was really insightful for me, im a Founding engineer interested in running my own quant hedge fund someday but I dont have the years of experience. Im interested in going independent and gaining the skills of a quant and hopefully I can leverage my network in the startup world to find LP's and make some meaningful connections in the P/E space.
I'm happy to hear it was helpful.
This was very informative video!
Thanks!
What about prop trading? There are probably various nuances here as well, but if you could borrow more than the initial 1 mil., 10% might be a lot better. (Probably over multiple years, if you can build a track record, you can also get more investment / borrowed capital, right?)
Doing it solo for a few years is a possible path to getting investors.
One of the REALEST video I've ever seen on youtube
I thought in the beginning(when reading the title) that by independent you meant freelancer quants that works for companies which is also not very common compared to other jobs like project management for instance.
great vid!
S&P return w reinvested dividend is above 10% PA from the 60s and almost 11% form the 70s. Not sure why somebody would choose a quant strategy that yields "just" 10%. If that's gotta be your salary, you need to target a much more aggressive rate of return (which could def kill your account tho, so balance those two)...
Dimitri can you do a series about prop firms for day traders?
The first 10% of 1M being 100k did me in. I now have zero interest in quants lol, thanks for finally breaking me of the interest!
What about making 20% on 5million? Will you get this upside while working for a firm?
Thanks for your videos Dimitri. I have been following your channel for a while now. And it has been informative; this video is no exception. Please, I have been meaning to ask. What’s your honest take on the WQU’s Masters of Financial Engineering? Is it a good pedestal to break into the Quant field from an Audit Analytics background.
WQU can be good if you are in a country that doesn't a lot of other options. However this also means you'll be working in your country where quant finance jobs probably don't exist. This can be good though as you can enhance the skills of traditional finance in your country.
Now if you are in a financial hub where there are universities offering quantitative masters, WQU is not comparable to a masters from a good university. I made a video on it and many people were upset but in reality most firms won't how online degree students over a rigorous traditional education.
Here is my WQU review:
th-cam.com/video/n82ZcvNVNyo/w-d-xo.html
Thanks for the response! I noticed the video is from 3 years ago. WQU recently revised their curriculum (catalog should be out in 2wks or so) and redesigned the learning platform to counter the inherent fidelity issues with online learning. So, the video might not be up-to-date . But, you are more experienced here and I value your thoughts.
Because of issues with access, as you’ve noted, I’m hoping WQU can help develop all the foundational knowledge I need to possibly pursue internships, another MSc, or PhD in Quant Finance, building on my consulting experience and MBA.
Also, with the proliferation of remote work, I am hoping I will not be limited to working in my country of residence as you opined, for the sake of gaining cross-border experience as I advance professionally. So, the plan is to explore all resources (beyond the lectures) to be competitive during the course of my study.
I don't follow WQU very closely but I know they originally started as a quantitative finance program when they were trying to get accredited. They later decided to move towards data science however once the accreditation started they couldn't change their curriculum and focus. I believe they are now accredited which makes since why the curriculum is changing. The main issue though is if you are in a non-financial hub country, it is nearly impossible to get a quantitative finance job there without physically being there. The US for example has the most quant finance jobs and we primarily hire only those in the US. There are security issues with doing inter-country work and the US has a ton of qualified people. It is far easier to find someone local. When I say this, this includes people from all over the world as the majority of quant finance is non-US citizens who have come here for an education.
My advice would be to try and get an education in a finance hub country such as the US, UK, Singapore, or China. I know it can be expensive but you really limit your opportunities by being remote.
Thank you Dimitri. This is valuable info.
On the other hand, I see that there are hundreds of Accountants and even Actuaries who have started their own private consulting and have had success at it.
but when they make a mistake they don't have to live in a cardboard box
Hey Dmitri, thanks for the video. Do you think it's advisable for a quant working full time to still put some of their quantitative know-how into the markets (e.g. writing trading algorithms / systems) on their own time with their own personal finances? Do you yourself use any quant knowledge / skills for your personal finances or is it more focused on "standard investment principles" (Not that they're mutually exclusive)?
I use general diversification. I personally don't have the time or resources to spend on doing it quantitatively.
I will start soon a new job in risk model validation i'm fresh from a phd in applied mathematics but i don't have that much experience and knowledge in finances. Any recommendations? Any particular book or study material? thank your in advance
My favorite book though fairly basic is, "Introductory Econometrics: A Modern Approach". The majority of issues in validation and development come down to people not understanding the model and data assumptions.
My affiliate link to the book: amzn.to/3HlqU0b
What about those few that make over 100% a year? Should they start their own hedge fund?
Nice video
Hello Dimitri, do you consider bsc data science a good degree(followed by MFE?)for quantitative finance
Or is stats/math better?
Any degree that can get you into a good MFE is enough. I don't prefer data science degrees because they often skip rigorous material in the pursuit of creating simple charts and learning packages instead of actual statistics, mathematics, and modeling.
@@DimitriBianco my bsc data science is 80% stats theory including proofs (although not required on exams) still thinks that MSc in mfe would be beneficial
How could I break into quant finance as a former college dropout, who currently trades full-time. Any schools I should target?
It really depends on your background. In general you'll need an undergrad and graduate degree. If you want to trade though, often a fancy MBA will take you further than learning math and stats (quant)
Not necessarily as a “quant” but I’ve lived the life for 7 years, all of my 30s.
Yes, it would have been infinitely better if I had started with $3 Million.
Regardless, it’s possible if you live somewhere where you can “pay” yourself $50,000 in January and it funds your life for all of 12 months. For me, that place is East TN.
You won’t live a lavish lifestyle until you are managing $10 million of mostly your own money.
Fixed deposits in india are worth 8 percent guaranteed. Those money is backed by government backs. There are bonds worth 7-8 percent government backed. I understand you point but in india one would need at least 25 percent return to make sense into an effort of making money to beat inflation and make profit on top of it
25 %??? What are u talking about 😅
What do you think about defensive and value investing
I'm a big proponent of diversification.
I am fortunate in this scenario because I am working with my cousin. He already has a prop firm and employees and works with non-algo options. My plan is to start our own quant branch when I am well versed enough in this and eventually transition to a firm. I do not intend on trading and researching my entire life and forming a big firm is one of my big time goals.
I agree. Trading as a full-time job and business would be extremely hard to do. I do it on my own and I am successful but the returns are far greater than 10% AND I have to work at a normal job. If I had to pay myself it would eat into most of my profits. I use it as a way to try and outperform the market, not as a completely self sustaining business.
Ive been trading for 11/12 years professionally previously having worked in markets. Dimitri is correct, but he assumes that you draw down completely on the profits assuming you have any and therefore don' t benefit from any compounding. Compounding is the magic in any trading operation. If you pay 20% capital gains tax, live on $30k which is achievable if you are happy to live a modest life, & put 5% return back into your capital, that $1m would turn into over $2m in 15 years time. With $2m you could put the whole lot into solid bonds & earn a $100k income which is what you'd get in a quant job & go and live on a desert island if you want) Or you could just continue trading and make more money. Now also consider that you are taxed more highly as an employee rather than an investor though out the period where you pay capital gains tax instead of employee taxes. Now you'd probably say that living on $30k is a frugal existence, and it is, but if you are dedicated to a craft which I am then its fine as I dont want to drive a fancy car, or go to expensive nightclubs or any of that stuff anyway. I dont want a boss, & enjoy independence. Just to add, that working in a corporation even a small quantitative shop you are a cog in the machine. If you want to look at the markets, study them in whatever way you wish & make money from them directly then you can do it as a private trader) Just to give an example, lets say you work in a quant shop, they might want you to work on a machine learning project trading crypto, well you might realise that this is going nowhere but since its flavour of the month the firm puts you on it. You see how it quickly become a mercenary job rather than being a real trader? Anyway I thought Id write & explain since your a trader yourself and maybe you want to transition one day! Or the transition might be made for you by your company, & when that day comes you might decide just to trade instead of looking for another job at 40 or 50 or whatever)
making 1% minimum a week is easy. Theres 50 weeks per year.
@@shichilaofa lol, let me know when you are able to do that consistently, it fundamentally doesn't work this way.
@@rcmag13you can do more than 1% a week just fine daytrading. 1% a week is terrible
@@shichilaofa1k to 20 million in 10 years is easy, yeah right
The only exception is if going independent means you initiate your own fund which has access to a lot >1 million USD
All have to do with capital. If you are naturally smart n you are a student and cant afford a good computer, this might discourage you or have money to spend on certifications etc.
So you're essentially saying, if you do end up becoming well versed in quantitative finance, you will likely not last long before you start your own firm or work for someone else.
It seems like you are suggesting that no one will be able to make a lot of money by quantitative financial intelligence at all but then you lean back towards, yes you could become one but it will not last long.
for some people like myself 60k a year and being my own boss would be more than enough. as older as i get i want more free time than more money
Wait so those TH-cam finance gurus have been lying to us? I believe those ‘’gurus’’ who film themselves all alone with rented cars and living in air bnb make millions and just want to teach us their strategies.
You laugh but I get people who actually believe it and then argue about how they know someone doing it. Reddit has large groups of these people.
I mean sure, assume that every quant is ultra ambition and their only consideration is money. Also assuming every "quant" fits neaty within your definition. There are many quantative traders, I know many, who trade their own money for good reasons and have no desire to work 80 hours at a firm or 80 hours starting their own firm. There are many traders trading their own money with relatively simple strats. You do not need to be doing stat arb to be a quant. The fact this very obvious consideration slipped you by is surprising. Probably intentionally missed it to make an edgy video.
Well said . weeellll said.
I agree and see independent a non existence or probably an attempt to make a point by someone who did not succeed? The guy is actually saving the day dreamers ! He means well!
I thought this would go down the route of the 'independent analysts' out there - who write paid blogs and research reports for their own followers.
Is this viable?
It's a possible path but I can't imagine it would be very profitable. The work to profit ratio would be higher than just working for someone as a quant. The only reason I create content is because I enjoy it.
@@DimitriBianco yea makes sense
How can I, a new college grad work for one of these growing firms? Where can I find them?
Get as many internships at top tier firms under your belt as possible, they usually don’t take recent grads so you need some form of investment experience
Im suprised you didnt mention the infrastructure required to make any kind of profit in the market with quant trading.
Hedge funds are moving their offices closer to the exchange and are investing into fibre optic cabling for the incredibly low latency time. Not to mention their access to direct raw prices and whatnot.
^ this is your competition, you're likely not beating that as an individual tbh.
doesn’t matter just trade 1 mn ticks, also it doesn’t matter because you’re not in competition you just want to ride the price action at the right time and extract your profit
Doctor Bianco hi,
I am very lost. I wish to get into Quant Dev. I have two summer internships to choose from at the moment - Nomura, NYC Risk Management and Salesforce, IN Soft Engineer. I want to ask your opinion on which of these two will open more doors for me in Quant dev.
Also, I have sent you an invitation to connect on Linkedin, and I would love to, if you will, give more details and introduce myself and my situation. If not, I would appreciate your response a lot, as I have to decide soon with which summer internship to go, and have never had such a complicated choice to decide before.
Thank you,
Latif
I would do Nomura. The name of the company will carry a lot more weight even though you aren't specifically doing quant dev. Nomura experience will open other opportunities and writing your resume can help you transition to quant dev if you have the CS experience/education.
1 million dollars at 7% return will be 70k per year and if hold assets for over 1 year it will be taxed as long term capital gains. If your single and you can pay essentially 0% taxes on the 70k (long term capital gains) after standard deductions. If you make 100k via job your take home will be around 70k after tax. But the job requires you to put in 40 hrs per week.
At a certain point you have to decide if working is worth it.
Also any idiot can make 6-8% a year by buying a holding index.
If you spend 40 hrs per week trading only to make 10% I would say it is not worth it...
Trend following is a quant strategy and there are lots of successful independent trend followers out there
Why do you say the market returns on average 6-8%? Isn’t it will known that the S&P 500 has averaged 10%+ over the last 100 years? Are you adjusting for inflation or something? Does this mean when you say hypothetically as a solo quant earning 10% are you adjusting that for inflation too and actually are getting a return of 12-13%?
I'm not sure where you're getting 10+%. Here's is just one of many links. In the last 30 years it's just under 10%. When you adjust for inflation you're looking at less than 8%.
www.sofi.com/learn/content/average-stock-market-return/#sp500-average-return
So, if a solo quant is getting 10% each year they aren’t doing any better than a monkey throwing darts at a list of stocks because you would also have to adjust the solo quant average return for inflation.
It’s pretty hard to be unsure where I got 10%+ from since I said “over the last 100 years.”
What if you make enough money to get by and you really really just don't want to work for someone else?
That's really a personal question. Trading solo is hard as you will have gains and losses. In my opinion there are many other options to be my own boss with less financial risk to make similar amounts. For example, running a landscaping business.
i don't get why would a firm pay you that much if you're not bringing in that amount. So if your salary is 100k and you underperformed all year that means you as a quant trader are costing the firm money
Firms have more capital and resources to increase volume. Both of these result in a larger dollar profit than an individual doing it solo. So a 10% return on your personal million dollars is much a much smaller dollar return than your 10% at a firm with 100 million. Also, many firms lose money but keep people on hoping for a better year the next year.
Isn’t that just day trading😂
The average return of the market isn't the average return of investors. The market often forces investors into uncle points. Trading is to beat the market average. You can't just be smart in order to play. You have to know all the areas where you are absolutely stupid as well. Manage risk first and then worry about profit.
Cant u just get a funded a million dollars from ftmo as a day trader
Please give your take on the Certificate in Quantitative Finance Program offered by Wilmott
Poo. Masters in financial mathematics is better then self study individual topics you need
And yet here I am, with publicly available third-party audited track records to prove it.
Matthew Owens.
10% is a terrible return, if you don't need to masters in fineng to do that. there are any number of retired quants kicking around voltwit if that counts as being independent. then there also the people wit their own first, which should also count too i'd think? I would say 20% would be the minimum to be considered "good', I mean was is Jim Simons returning? if you can only make 10% then no, you probably cannot be independent.
I'm guessing you don't look at historical returns. The last few years are abnormally high due to low interest rates and the government pumping money. Not to mention around 50% of hedge funds end up going bankrupt. You end up measuring survival bias.
Jim Simon's Medallion Fund averaged around 66% over 30 years but it only handles limited funds and is closed off to outside investors.
If you check the performance of RenTech, it hasn't done that much relative to the market benchmark.
I think the reporting of his success might be slightly overrated. People often skim how much survivorship bias plays a role in these things.
he is a headhunter. What do you expect him to say😂.
What country are you shooting from?
America
@@DimitriBianco interesting. The room looks so European. Reminds me of my grandmas house in EE..
The title is totally a click bait, also I'm a quant, in africa, in country probably you never heard of, and yes, it's totally possible. You dont even need powerful computers to run complex algorithms for short-term trading. If i can do it, anybody who determined enough can do it too
“It takes money to make money.” Adam Smith *The Wealth of Nations*
If you live beneath your means for 5-10 years on an income of 100k (median spending after taxes) you would have the ability to save 20-30k/year. Those savings, with pay scaling, could leave a nest egg of ~$1 million. If your micro-system works…maybe you can do something.
Dont listen to his bs the only thing you need to do as a human which makes human errors manage your trades risk management and size up when the trade is in your favour and cut the losses quick dont hope for it to turn your way this is the core the rest can be a strategy that has good better odds working out like double top reverse or break retest go
thats like saying day traders dont exist 🥴
May be you shouldnt be a quant if you are not able to make more than 10%
Average made 6%? Buy and hold made 9%. Let's not even mention crypto
🎯 Key Takeaways for quick navigation:
00:04 🧐 *The Biggest Lie in Quant Finance*
- Many aspire to be "full stack" quants, believing they can excel in all aspects of quantitative finance.
- Specialization in specific areas is crucial in quantitative finance, whether in large or small firms.
01:43 🕰️ *The Power of Specialization*
- Specialized knowledge gained over years is invaluable for spotting issues and making informed decisions.
02:55 🌟 *The Illusion of Full Stack Quant*
- Being a full stack quant doesn't mean mastering every aspect; it often involves specialization within a niche.
06:23 💡 *Lifelong Learning in Quantitative Finance*
- Quantitative finance is a field of continuous learning, with new breakthroughs and specialized areas emerging.
09:44 🤔 *Managing Realistic Expectations*
- It's essential to set realistic expectations and enjoy the learning process in the ever-expanding field of quantitative finance.
Made with HARPA AI
th-cam.com/video/WkLPbbedY3g/w-d-xo.html
This Korean stole your video. And your video is great, thank you for the good insight.
Yeah I got a notice about it from youtube. I wasn't sure which approach to take. I could have it removed by youtube, I could ask them to remove it, or I could leave it and hope they don't copy more videos. As of now I have decided to just leave it since it does promote the content with subtitles. If more videos are copied though I will ask them to remove them.
Thank you for the heads up.
"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Winston Churchill
None of this was pessimistic, he was actually quite optimistic in all of his assumptions. This video just goes to show that even with an optimistic view, being an independent quant is so hard and unlikely that you misinterpreted it as pessimism. Go figure!