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I had a friend who wrote PhD on string theory, and then moved to financial industry. He had circulated an email about his job hunting adventures. I hope he does not mind if I reproduce it here. (Otherwise he must be powerful enough to void me, haha.)
So I've sold my soul to the devil, and he promised me loaves and fishes.  I'm not sure I've ever dreamt of that, but if nuggets are a measure of usefulness, at least I'll feel damn useful now.  Just like the mafia boss must feel.  Jeeez, it's only a small step from quantum gravity to moral gravity.

I've now become sort of a "quant" (quantitative analyst, for pedants). These are the fortune tellers in investment banks who foretell the prices of complex derivatives - like the option of buying an ice-cream at half the price given that we're still waiting for the summer and that cows are threatened by BSE.  The crystal ball is called "Monte Carlo" and our secret weapon are partial differential equations - hence the need for physicists.  We all sing the same tune (heard on the Street):
"Sell the highs, buy the lows;
  Take their money, bash their nose."
And what a bashing it will be!  Oh boy, pray I be merciful.

So let me tell you how I got caught up in this.  I've had quite some adventures in job finding - started out almost a year ago and bumped my candid nose against the glassy doors of industry.  I first knocked at all big players in strategy consulting, got invited 8 times for interviews.  Gee what a honeymoon it was! with the muses, that is. I spent more time in all of Germany's museums than solving case studies in boring offices.  And all expenses paid.

Some firms squander 1000 euros just to see your face: first class return flights and Hyatt five stars (awful, all this luxury: couldn't close an eye! next time I'll ask for a bench in the park).  And all this at the outlay of the sophomore consultant who burns the midnight oil - and his brains on the way.

Since they recruit 1 interviewee out of 8, I had to try eight times before giving up.  And indeed the eighth firm showed signs of mercy, promising to hire me after a sheer 9 hrs interviews (w 9 diff people). When I rang next week to sign the contract, they insisted on a tenth interview.  You get no points for guessing the end of the story.

Reasons for rejections were as wild as sex: first not enough structure, then (upon offering structure) not creative; not passionate, too animated, not clever, too brainy,...  The last guy sounded: "Yes, we understand you see the challenge in the nature of the work; yet we doubt about your material ambitions: Don't you dream one day of driving a BMW deluxe ?"

Oh Mammon! (sigh)... how could this happen in Germany ?!  In the country of Goethe, Gauss and Beethoven [!!]  Go tell this Fritz I now manage his bank's wealth and that I've already siphoned off the fuel from his next BMW.  Pray I leave him more than the exhaust.

I also wonder why they need physics PhD's for knowing why plastic bottles are sexier than Tetrapacks (typical case study).  The answer is that they treat themselves by inviting certain profiles; but when it comes to employing in an industry that's been flat for the past five years, you better stick to that sweet graduate from economics and minimize risk.  In the end, it boils down to the confidence your voice betrays.  Oh, and to that label on your suit!

[After] biting the dust, I finally looked at where mathematicians are most wanted: finance!  For the past year, banks have been recruiting massively and are now on their knees to attract PhD's.  So with the wind in the back, I suddenly turned from beggar to chooser: I spent Dec, Jan and Feb reading finance and sprucing up my C++.

Then I went to Mecca for the first rounds - London, that is.  The news agent [already] gave a foretaste. He sells about 100 items: the FT and the WSJ - the rest is porn.  I climbed on all those scary towers that mushroomed recently, symbols of corporate power, epicentre of the world's financial earthquakes, Sodom and Gomorrah of global capitalism. I made sure I thoroughly enjoyed the view before OBL's planes will turn this Babel tower into rubble simply because he doesn't agree with us that evil is good - err, I mean good is evil, no, wait, I'm confused...

Then came [other cities]. I lied my way through interviews (what don't you learn from 40 hrs of failed interviews in consulting!), growing more confident with every single rubbish I cooked up.

At one point, the boss asked me what my shortcomings were.  So I lowered my looks and took on a practised blush (that's where acting comes in handy).  "C'mon, you can tell me, can't ya!" the boss said. "Well, I replied, it's probably...  greed!"  The boss got planet-struck, jumped from his chair, rushed to me and shook my hand: "Mr [X], welcome to the firm! here's your screen, make a million for the fund; if you do more take your crumb, if you do less you're fired."

That's how I ended up with [this] hedge fund for stat arb (statistical arbitrage, or systematic trading).  Hedge funds, ladies and gentlemen, are those vultures managing the wealth of big banks or pension funds.  They stand first in line to milk the cow, and usually consist of traders who're still not happy with their triple bonus from the bank, as well as of a few quants. They use alternative investment methods which ensures to hedge the risk - hence their name.

The most mythical of all hedge funds, Medallion, was set up 20 yrs ago by jim simons, a successful math/phys guru known for the Chern-Simons gauge theory.  This guy's been doing returns of a constant 35% since 1990 with a Sharpe of 4 (reward/risk).  He employs a little family of 60 physics PhD's in New Jersey, who devise clever algorithms to suck the stock market with systematic trades, i.e. their computer buys and sells thousands of times per minute, sometimes holding a position for just a few seconds.  Decisions are made statistically: all you need is to be right 51% of the time.

Now this Croesus owns way more than 5 billions, which is the upper limit above which your trading strategies have too much impact on the market and bite their tail.  So the unfortunate fortunate had no choice but to open a charity and to fund... not dying africans nor abandoned dogs, but the pariahs of the world, the outcasts of society, the intellectual hermits, the scholarly troglodytes, the modern Diogenes,..., also known as: mathematicians!  He funds several institutes [and] academics - otherwise despised by the taxpayers.

It's a thorn in our eyes that this guy remains unchallenged and walks away with the lion's share; so we are set to give him flak. [My fund] is a little family of 15 PhD's [and] 15 IT guys.  [Its] best-performing fund made a sappy 35% last year with a Sharpe of 3.4.  So if you have a spare million, send over your eggs and we'll brood them in our fast breeders (70% with double leverage).  We now sit on 1.8 bn and are soon going to kick out the cuckoos' eggs.  And don't forget: either you're with us or against us.  And if you're against us...  Bashing!

So what's the value to society ?  Well, there are short term pros like adding liquidity and efficiency to the market.  But there's a hidden long term benefit:  You see, it's due to bastards like us that the rich get richer (700 billionnaires today vs. 470 two yrs ago; or a total of 2200 bn today vs. 1400 bn).  So the more the hedge funds compete, the quicker the 35% returns will plummet to a sane 8%.  It's like jumping in the fetid boat to drown it sooner.

The sea is full of mines, though, and an ill-reputed hedge fund has already drowned: LTCM with its capital of 4 bn and leverage of 200 bn. That was back in 1998, and off the two Nobel laureates on its board went playing the second fiddle!  CFM with its stat arb is tempest-proof; its strength lies in its decorrelation from the market, so we don't care if the S&P goes banana.  We spend the day frisking in the mud of data, filtering out signals from a tsunami of noise. That's much like what the guys in particle accelerators do.

The firm's atmosphere is more than relaxed, working like in academia. Since our computers do the trades, we have no traders breathing down our necks, and no pressure; nowhere seen in finance!  At noon it's binge time, and we gradually map out the zoo of restaurants in the area (9. arr.).  What else would I do of these lunch vouchers my boss pays me with ?!  

[The] great thing about industry, is that the week-ends are for you, no matter if the world collapses.  No guilt feelings about this or that paper that you still haven't read, and no wrong computation to haunt your sleep.  On the other hand, the silly [system] doesn't grant me any holidays in the first year.  

[I] hope you appreciate my latest societal observations about the REAL world: since I work in finance, female acquaintances start confiding me their doubts about their current partners at a frightening rate. So I advise them to start a career in finance; perhaps the guys around them will start showing similar doubts.  Tell me more about emancipation! - the freedom to choose your fondest slavery.

by das monde on Wed Mar 21st, 2007 at 11:58:12 PM EST
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