Incredible quant and algorithmic trading platform in Python with an interesting business model: any algorithms you develop on their platform is yours, and they can be considered for an infusion of capital of between $1M-$50M. If successful, the algo creator keeps 10% of the earnings!
IMO it’s a disruptive idea, doing for quant hedge funds what Amazon Web Services and all the other open source tools are doing for tech startups in general by lowering the barriers of entry since you don’t need high fixed up front costs for servers, software, etc., and they can be scalable as needed later.
I’d even go so far to say the activation energy barrier for something like this is even lower than for tech startups, since for tech startups you still need some initial amount of capital to live on, and need to spend a lot of time on other things like ramping up or actually doing: fundraising, legal, customer development, product development, etc. Whereas here, it’s just pure algorithm development focused on data feeds.
Interestingly, it’s also seamless to consume third-party APIs from Google for Machine Learning / AI along to aid in algo development. Also, since the code is yours, you can port it off the platform onto your own repo and run it anywhere.
Goal is to allocate my time:
– 50% on fundamental/technical research for discretionary swing trading at the multi-week timeframe
– 50% in learning quant finance and algos and developing trading algorithms for the intraday timeframe
The absolute worse outcome is gaining quant/algo knowledge, and improving my Python abilities.
This is an interesting contention by Bernstein Research that passive investing through index funds, and the massive government incentives to invest in them through tax-deferred and tax-sheltered retirement programs, is worse than Marxism.
The contention is that:
1. Markets are a mechanism to allocate capital
2. Indexing and the infrastructure supporting index causes capital to be allocated inefficiently without effective analysis and with leakage to those who do very little or nothing
3. Bad companies get disproportionately MORE capital and positive attention (either via direct capital investment or lack of shorting) and good companies get disproportionately LESS capital and positive attention
The Left would be heartened by the positions here since it would mean that any arguments against poor people on welfare would first need to address what’s essentially welfare for high income people. The Right would be heartened as well since it’s a strong statement against earning undeserved income and wealth, while at the same time making a statement against the perverse incentives introduced by government policies WRT taxes and tax-deferred retirement accounts.
I have no problems with even massive income and wealth inequality, however, there are certain classes of high-income professions that act similar to parasites since they don’t do much yet get paid a lot. This is encouraged and enabled by the tax code with respect to tax policy in general and tax-deferred retirement accounts in particular.
To make this more concrete and less philosophical: I bet a lot of people have significant assets in their retirement accounts, which in turn are invested mostly in passively-managed index-based ETFs and mutual funds. The ETF and mutual fund industry pay managers out of your pocket for doing close to nothing. In particular, fund managers’ jobs may be to simply ensure that their portfolio matches closely the composition of third-party indexes like the S&P500 or Russell. This is a mindless task and may approach 1% of assets, annually! This is further exacerbated by custodians of tax-advantaged accounts (tax deferred such as 401k or tax-exempt like Health Savings Accounts) that get paid for doing the same and arguably less – allocating your capital to those ETFs and mutual funds. This is another layer of skimming off the top that may approach 1% of assets annually for doing very low-skilled work approaching doing nothing.
Currently formulating my overall trading thesis. It’s subject to change as time passes and
– I get more experience in trading
– I acquire more knowledge from research more
– My capital available for trading increases
The very first paper is this interesting 21-page research paper by Institutional Investor “Russell 2000 Reconstitution Effects Revisited” on the positive effects on stock price after getting included in a widely known index like the Russell. This boost in share price from indexing will be my primary trading thesis going forward.
Institutional Investor – Russell 2000 reconstitution effects revisited
This graph is from Ananth Madhavan’s paper: The Russell Reconstitution Effect about the performance of a portfolio of securities of Russell 2000 securities that long additions and short deletions.
I don’t really want to moving in and out of positions intraday multiple times since that doesn’t catch the big moves, nor hold a stock for years or decades since I want to make the money sooner, so it seems the sweet spot is however long it takes for a fundamental catalyst like an indexing event takes to manifest itself in a stock price, catch the largest and most predictable part of the move, and then move on. This timeframe is on the order of days to quarters, but less than years.
I do believe that long-term value investing is without a doubt the intellectual framework that will get the most money, but it is more suited for much longer time periods and much larger quantities of capital approaching the institutional level since you need a lot of money to make a lot money. A moderate 20% annual return on $20 billion is great, since that’s $4 billion and large on an absolute scale. But if you’re playing with your own capital of $100k or $1M, you might want to try respectively for 5x or 2x on it in a year since even that relatively high percentage does not lead to that much capital on an absolute level. In fact, a low-priced stock could easily multiply by 10x in a few days. A $25M market cap company can easily go explode by 10x, whereas a $2.5B might only move 10% over a year.
Just trying to reasoning through the ideas in this paper before I read it in-depth or get further research. If a stock gets picked up on an index, then more likely than not (nothing is guaranteed):
1. The company may is performing better than before, so the fundamentals are great
2. There is greater demand for that stock since now trillions of dollars of mutual funds, ETFS, and various portfolios will pick it up, and that increased demand will drive the stock price up
3. There is greater sentiment in the market place, and that becomes a self fulfilling prophecy
The next preliminary tangible next steps will be:
1. Read through 10 research papers around this area
2. Compile a list of multiple indexes, starting with Russell, and all the stocks that are getting added as buy candidates at around $5.00, and all the stocks that are getting deleted as short sell candidates
3. Focus on stocks priced around $5.00 since those usually indicate companies that can move a few hundred percent very quickly and have smaller market cap.
4. Quick assessment on their latest 10-Q (not 10-K) and any major recent and projected developments and news – not for investing purposes but for trading purposes on the order of weeks or months.
5. Create a calendar of projected next events over the next 2 quarters
4. Start to look at very basic technical indicators such as price, volume, support, and resistance to formulate entries and exits
Trading Journal 