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A gambling thought experiment

Discussion in 'Anything goes' started by Dick Whitman, Apr 7, 2015.

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  1. 93Devil

    93Devil Well-Known Member

    Sort of surprised that no one has mentioned that a reporter covering teams was gambling on those teams, but the poster is right; the only way to beat Vegas is to have more information than Vegas. If you are a beat reporter, you have a chance at that.

    There is a great section of the book Casino by Pileggi where the gambler in the book was very successful at gambling, but he disciplined himself to only bet games he had serious inside information on. People who bet 8-10 games a week are bound to lose out in the end. The casinos are just too good. He would go weeks without making a bet, but if he knew that the QB's gf just got preggo out of wedlock or he just started a coke habit, he would play that game hard and win big. Then he wouldn't bet until he had another game like that.

    Casinos were not built on winners.
     
    93Devil, Apr 12, 2015
    #61
  2. doctorquant

    doctorquant Well-Known Member

    I'm sure they're very good, just as I am sure that there are (and will continue to be) small, short-lived inefficiencies in the market.

    But an average of 35%, for more than 20 years? C'mon ...

    Let me put that in numerical context ...

    If you invested $10,000 with these guys and left it there to compound for 20 years, an average annual return (net of fees) of 35% would take your balance to a little over $4 million.

    If you had it there for 25 years and they returned that (which is what the most glowing reports suggest they've done ... average of 35% for close to 25 years) ... your little $10K would have become a cool $18 million.
     
    doctorquant, Apr 12, 2015
    #62
    YankeeFan likes this.
  3. The Big Ragu

    The Big Ragu Moderator Staff Member

    1) They were on the forefront of high frequency trading. The market has largely caught up them, I believe, and they are actually a little bit of a dinosaur now. I know the Medallion fund -- the one we are talking about -- has had several losing years in the last 5 years or so, and I believe their assets under management has fallen off a cliff (from several billion, I believe down to $500 million to $900 million) as they have lost their ability to game the dark pools to other HFT firms that are now running circles around them. I am more astounded by the thing I told you about Virtu -- they are doing thousands of little scalps every day, and they only lost money on one day out of close to 1,300 days.

    2) I understand what you are saying about the growth of your money, but the thing is, you couldn't have given them $10K and left it with them, obviously. Using the SEC's silly, random criteria, you need to be an accredited investor (more than a mil in assets, or earnings of more than $200K or $300K a year for the last several years) for Rennaissance to even talk to you. And they still wouldn't have been interested in your millions of dollars if you had it. The Medallion Fund has been closed to new investment for a long, long time.

    3) Many hedge funds (at least the ones that can get away with it) charge their fees on a 2 and 2o schedule, meaning they take 2 percent of your assets each year as a management fee, and on top of it, they take 20 percent of any profits they earn. Rennaissance was so ridiculously making people near guaranteed money, that their fees on the Medallion Fund used to be 5 percent of your assets plus 44 percent of profits. That 35 percent annualized was after they took that much in fees! I don't know what it is now.
     
    Last edited: Apr 12, 2015
    The Big Ragu, Apr 12, 2015
    #63
  4. doctorquant

    doctorquant Well-Known Member

    I understand that re: the $10K. That was just a convenient number, expressing just how much growth that implies. And I could be way the hell off-base here, but I am profoundly skeptical that you could do that well for that long.

    To frame it in sports terms ... I've read several estimates of the probability that a Joe DiMaggio would have at least one 56-game hitting streak in his career. I've seen it has high as 1-in-3,000 and as low as 1-in-400,000,000. Even if we opt for former, that means that we'd need 3,000 Joe DiMaggio seasons before we'd reasonably expect to see one 56-game hitting streak.

    I don't doubt that in any given year somebody out there way outpaces the market. Doing it three, four, five years in a row? Now we're getting into DiMaggio territory.

    Doing it 20 years in a row? That, to me, is DiMaggio hitting in 50+ straight five or six times.

    That this Medallion fund: 1) Has been closed to new investors for close to 20 years; and 2) is managed almost exclusively for Renaissance employees, leads me to wonder whether these fantastic returns are the stuff of ... puffery used to draw investors into these other funds.
     
    doctorquant, Apr 12, 2015
    #64
  5. bigpern23

    bigpern23 Well-Known Member

    So, do they like the Celtics -10.5 against Cleveland tonight with LeBron, Love and Irving out?
     
    bigpern23, Apr 12, 2015
    #65
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