. . . but No One Caught Railroad Bill
22nd July 2010
Look up. Sniff the air. Smell it? Get ready for the end of the fear market and a return to the greed market. Read the tea leaves and see smart computers in your futures.
One upstart in the AI race on Wall Street is Rebellion Research, a tiny New York hedge fund with about $7 million in capital that has been using a machine-learning program it developed to invest in stocks. Run by a small team of twentysomething math and computer whizzes, Rebellion has a solid track record, topping the Standard & Poor’s 500-stock index by an average of 10% a year, after fees, since its 2007 launch through June, according to people familiar with the fund. Like many hedge funds, its goal is to beat the broader market year after year.
Wow. Beating the S&P by 10% over 3 years. How do they do it at Rebellion?
“It’s pretty clear that human beings aren’t improving,” said Spencer Greenberg, 27 years old and the brains behind Rebellion’s AI system. “But computers and algorithms are only getting faster and more robust.”
(What I wouldn’t give to be 27 again. Almost the smartest guy on the planet, but always the smartest guy in every room. And, I only got smarter . . . until, well, you know . . .)
Ready for the Magic Words?
The firm’s current portfolio is largely defensive. One of its biggest positions is in gold stocks, according to people familiar with the fund. The defensive move at first worried Mr. Fleiss, who had grown bullish. But it has proven a smart move so far. “I’ve learned not to question the AI,” he said.
“. . . not to question . . .” Please remember this when you read about Rebellion and lawsuits.
If you are old enough or well read enough you might remember ‘Adam Smith’ who started the postmodern wave of creative nonfiction writing in finance and business with his monster book, “The Money Game,” published in 1968. George Goodman, the nym behind the pseudo of Adam Smith, introduced us to Wall Street and quants like Albert the chartmeister, Irwin the Professor, and the darkly foreboding Railroad Bill. They all said and did the same things they are saying and doing today and as exemplified in the WSJ story about Rebellion.
All Bad Persuasion . . .
P.S. If you missed ‘Adam Smith’ in the 1970s check him out. George Goodman really did invent the new business writing that endures today. Guys like Michael Lewis couldn’t exist without Mr. Goodman. Plus Goodman’s books are still great reads. He spotlighted Warren Buffett in 1973 in “SuperMoney.” Talk about a guy with vision.
P.P.S. Interesting sidebar on pseudonyms. George Goodman writing as ‘Adam Smith’ enjoyed huge success in the 1970s and 1980s, but you’ll have trouble finding his work on Amazon. If you type in “George Goodman” you don’t find his stuff and if you type in “Adam Smith” it’s even worse. You need to know specific titles to find him in databases nowadays. Check out the Wiki entry for George Goodman to learn more about his work and the man himself. A most interesting life. But, be careful with pseudonyms. Databases won’t remember you!