I'm a professional poker player (11 years) and I feel my "job" adds no value to society (many people argue that we're entertainers, my counter argument is since the game would run whether I played or not, my presence is pointless, unlike an actor where if for example Sylvester Stalone didn't write/act in Rocky, the movie wouldn't exist, and I love that movie and I'd argue society is better off because it exists)

My question would be the same for you. Do you feel you provide anything to society? (you said before you did) but if you didn't exist, instead of "you" realizing that extra return (assuming you're +EV risk adjusted) then someone else would of received that extra return if you didn't "take it" from them by realizing the mistake they made (much like how I realize people make mistakes in poker and exploit them).

If I didn't exist in the poker game (because I'm way better then the average player I play against) they would lose less, play longer, get to play against other more fishy/non serious players, and I'd argue the game would be better for them (smaller negative hourly, chance to turn losers into winners, etc. etc.)

Wouldn't the "stock market game" be better if you didn't exist in it? And society be way better off if someone as smart as you left the game, and did something more productive like become an engineer or doctor? (just like how society would be better off if I quit poker and became a construction worker or dentist etc.)



Just curious if you think my point of view is valid, or if I'm missing something. I'd LOVE to be proven wrong, and be told why me being a professional poker player is "good" for society (or you a hedge fund guy), because it's one of the biggest "life" things I struggle with in choosing this career.

It seems like you place a lot of emphasis on information ratio, sharpe ratio, and basically the return per volatility/stdev.

How do you think about prospective investments? Do you estimate the excess returns and vols and rank your options accordingly to find the best "risk-adjusted" returns?

What is your thought process when the realized vol over the holding period is different than the expected vol? How do you know if your initial estimate of vol made sense w/o being results oriented?

To follow Riza's point, do you think that the massive braindrain from the math/hard science world to finance has been a net positive or negative on society?

Also any thoughts on the future of the hedge fund world? The below is from today's Matt Levine column on Bloomberg (regarding CALPERS dumping HFs), and if close to true would this mean that funds in the future will have to lower fees and become more transparent?

You really think that society would be better if people gambled for more hours? It might be better for them, but for society?

One positive: you provide a deterrent against more people gambling as they know there are pros who are much better than them playing against them.

Just to help out: another possible benefit is that if you use money you win better than the average pro (who would otherwise win that money), it's a win for society. You winning 2k and giving it to charity/invest in a good company/invest in education for your post-poker career/... is gonna be better than the average pro spending it on a 2k hooker.

You could also not care, but I guess that's not in the cards for you

Eisenhower was a poker player, if he didn't win he would have been disgruntled and not have money to marry wife and probably quit Army. Then we lose WWII. He does not become president and unable to hold off democrats after do nothing congress and we go back into depression. Poker saved the world 100 MM lives.

sure, no problem. they were related to the same thing.

"how much of the investment decision is made by committee, how much ultimately comes down to the PM or CIO just picking stocks and bonds. Iv heard from some big firms that really the founder or CIO tends to do most of the selection and at the end of the day many analysts and committee are just for show and validation."

"what percentage of idea generation comes from the top/exec rank, and what percentage comes from the analysts?

how do you keep your best analysts from leaving and starting their own shop? (other than paying them **** tons)? "

I think that it is plausible that financial analysts working for hedge funds or otherwise have a positive effect on society (though possibly on lesser magnitudes than if they had gotten another career).

It is easy to see that they make the markets more efficient (assets are traded closer to their intrinsic value). It is possible that without such analysts, FB would be worth 10x what KO is worth (exaggerated example).
It is possible that capital would become mis allocated so that solid companies that create value to society are under funded (or the incentive is decreased to even create such companies)

Another consideration is that if markets were much less efficient, it would provide incentive to anyone who's reasonably smart to quit their job and likely successfully beat the market.

In conclusion, efficient markets are desirable and financial analysts are a necessary evil

On the other hand, the exorbitant fees of certain funds which do not have the performance that warrants such fees significantly hurt the quality of life of their clients, which is clearly bad for society...

Why is there even an alpha? It seems if hedge funds want to show they are better than indexes and can beat the SP500 index, they would only operate on beta. In fact not beta based on libor, but beta based on SP500 returns or the index your fund is suppose to beat.

This would be an interesting and complex analysis. Not sure if it's outside the scope of the book, but I'd like to see a chapter on it. Although OP's vested interest will no probably lead to "yes". Few people want to believe that their life's work is a big negative for society.

I'd say, strongly no to hedge funds being positive. Average alpha is tiny to non existent in hedge funds, which means that they do little to correct pricing (alpha is by definition the correction of pricing), which means the "efficiency" argument is largely void. So you're left with a bunch of highly intelligent, organized, disciplined minds (something in short supply) working in a field with perhaps the lowest positive externalities of any professional field that intelligent people could be employed in. That has be a net negative, no?

Be interested to see hedgefundguy's take on this.

Lots of hedge fund money comes from pension funds for government/public workers. Their returns go into the retirement accounts of these people. How isn't that a positive benefit for society?

If they aren't good at managing money, they are extracting fees in addition to not providing adequate return/risk. That would definitely be bad for beneficiaries. If they are good, you are right, it is a positive to the beneficiaries.

I am not sure of the macro implications, though. Does + alpha mean that someone is producing - alpha? And any benefits come at another's expense and the net is 0?

Market efficiency is also a benefit to society and I think it's a pretty significant one. Yeah it's less tangible but I think it's still important and meaningful

You are definitely right, but it comes down to if funds are overall good at allocating resources when we are discussing the net impact to society. Is the net benefit positive or negative? Are there more funds that are good at allocating resources or bad at it?

yup, this is by definition

Because someone else would of received that extra return.

So maybe instead of a 60 year old school teacher nearing retirement receiving that extra return in her hedge fund invested pension, a 57 year old bus driver would of received that return in the pension fund he was invested in that happened to be in the next state over.

In other words, since all it'd doing is taking from one, to give to another, it's not helping "society"...all it's doing is helping the person who it is "given" to. (just like how me exploiting a fish's open limp doesn't help society, all it does is exploit their weak play and cost them EV and give me EV)

Horribly worded by me, I apologize (never been a very good writer, so it's common to not explain myself well on forums, lol)

I was more saying, if he played the same amount of time whether I was at the table or not (say his wife said he can play for 3 hours then he must come home for dinner)...by me not being there, and another random taking my place, he'll theoretically lose less, but get the same enjoyment out of the game. (maybe he'll even enjoy it more because his hourly will be less negative, hence it's easier for him to get "lucky" and have a winning session since he doesn't have to get "as lucky" to turn his theoretical average losing session into a winning one, thereby having more frequent winning sessions and more "fun")

I do agree what you said about deterring people could be a positive. But I'd argue it's a very small positive. And maybe even the reverse exists (many of my friends/acquaintances have "tried" to be a pro because of the money I was making...4 have quit their job, failed, then went back to work, for lower pay and lower on the corporate ladder...also 1 friend is now a pro, living in mexico, and it's "because of me")

I am not entirely sure. There are many people better at stats and quant finance than me on this board, but I am thinking: what if everyone is long the index, except you? Everyone receives 0 alpha, but you might be able to employ a strategy that does better on a return/vol basis?

In a world, where the index is suboptimal, can't there be a net + of alpha? As the indexers are taking on suboptimal positions so you can employ a better portfolio but since the index is the measure of performance, they always produce 0 alpha and it's theoretically possible for you to produce alpha?

Sorry if the wording is confusing. I can try to clarify if someone didn't get the general sense of what I am saying.

Makes sense. It's hard to argue because the greater your scope the harder it is to make accurate statements/forecasts (e.g. society vs. an individual).

Like in your 2nd and 3rd paragraphs. If people are getting luckier, are they more likely to be fooled by randomness and think they can play poker full time leading to the negative you perceive in your 3rd paragraph? I think in games in general, the reason you introduce variance is to fool the less skilled into thinking they can win. The less variance the less likely they are to be fooled into thinking they are winning.

It's very tough to think about how systems affect society in total. In my experience, the reason I don't gamble is that I know I am not favored to win over the long term at meaningful stakes.

Also, I think in your case, if you don't think gambling is a benefit to society and you need to feel like you are bettering society, why not look towards helping society in your free time? Many people do not gain fulfillment in their careers, why not try to find that outside of your career because that is where it is most likely to come from?

That's not exactly an example of increasing market efficiency. More so returning alpha to investors. Again this isn't a zero sum game. Efficiency would be merger arbitrage provides a fair price for investors to liquidate shares and not take on deal risk, short sellers keeping junk stocks from becoming overvalued and getting added to index's held in retirement accounts or liquidity providers bidding for stocks everyone is trying to dump

Ahem. If you're not asking HFG a question, please don't post.

Whats your suggested alternative?

The alpha must be gone if the best hedge fund managers are writing books to make money

not to hijack the thread, but the someone needs to sell the index to you for you to "employ a strategy" that generates +alpha so he is losing alpha in essence

fwiw, bridgewater has an article on this somewhere on the web if you need "expert" opinion

edit: I would prefer for people to post question to OP not to turn this into discussion

so to repost a question: initial parameter variation of strategies you see? Most things I see are blindly over-optimized and rarely mention what happens if you modify your parameters f.e. +-50%... do you force parameter stability or any other ideas...