quantfold

Quant trader · Wall Street alpha through mathematics

[quantfold @quant_fold]

https://t.co/1gowiGOKij

[quantfold @quant_fold]

$22 million. Elon Musk, 27. He spent $1M of it on a McLaren and wrecked it uninsured. Then he put $12M into something riskier. What?

In 1999, Compaq bought Zip2 for $307 million in cash. Musk’s 7% share came to about $22 million.

At 7am, a truck stopped outside his apartment and a McLaren F1 rolled off the back. He told the camera it cost $1 million and was decadent. Three years earlier,
he said, he was showering at the Y and sleeping on the office floor.

Standing next to his fiancée, with a supercar and a new fortune, what worried him was this: that he and his wife would become spoiled brats and lose perspective.

He knew what the money could buy. He said he could buy an island in the Bahamas and make it a personal fiefdom. He chose something else. He put $12 million into X, an online bank that very few people believed in.

He called it a series of poker games. He had not taken his winnings off the table. He had put almost all of them into the next game.

X merged into PayPal, and eBay bought PayPal in 2002 for $1.5 billion. Musk’s share of that, as the original post tells it, was around $180 million, and it went into SpaceX and Tesla.

The car had a different fate. Not long after, with Peter Thiel in the passenger seat on the way to pitch Sequoia, Musk floored the F1. It spun and went airborne. It was reportedly uninsured. Both men walked away.

The only time he cashed out, he bought a car. Everything else went back on the table.

What would you do with $22 million at 27: take the chips off the table, or push them all back in?

[quantfold @quant_fold]

@0x_Ito Love is a long position with no stop-loss

[quantfold @quant_fold]

@barz3n The best financial decision of his life was rejecting a 5x

[quantfold @quant_fold]

@0x_Ito The re-records were a masterclass in asset pricing.
A catalog is worth its future royalty stream. She created a perfect substitute for that stream and told 100M+ fans which version to play. She didn’t outbid the owners. She devalued the asset until it came back to her.

[quantfold @quant_fold]

Evander Holyfield, 2012: a $14M debt on a house he couldn’t afford to run. The bank took it. Then the auctioneers took his rings. How does a $250M career end like this?

The mansion in Georgia had 109 rooms, 17 bathrooms, three kitchens and a bowling alley. Reportedly it cost him millions a year to keep running.

He had been in and out of foreclosure on it for years.
By 2012 he owed more than $14 million. The bank foreclosed, and the house sold for a reported $7.5 million. That summer, his belongings were carried out.

That fall, an auction house put the memorabilia of a lifetime on the block: championship belts, rings and fight-worn gloves, including a pair from the Tyson fights. Holyfield sued to save part of it, and a judge pulled a few items from the sale.

In the video he explains what happened to the house.
A family member took out a loan against it. His sister, he says.

He never pressed charges. She was older, almost like a mother to him. “I made too much money to stoop that low,” he says.

A champion earns $250 million over 20 years and loses the house in one. The fights did not cost him the money. The house did, one decision at a time.

Money you earn is fast. Money you keep depends on who is allowed to borrow against it.

Would you have pressed charges?

[quantfold @quant_fold]

@0x_Ito he didn’t go to prison for the trade. She went for the story she told afterwards.

[quantfold @quant_fold]

A superstar at 40, Billy Joel couldn’t afford a house. His audit led to a $90M lawsuit and a $2M judgment. Who was running his money?

Frank Weber was the brother of Joel’s first wife. After the divorce he stayed on as Joel’s manager. He handled the business, and he wrote the checks.

Joel’s second wife, Christie Brinkley, grew suspicious. She noticed the private jets and the racehorses, and she told Joel his manager was ripping him off. Joel did not want to hear it.

Then Christie wanted a bigger home in the Hamptons. Joel told his record label’s president he’d have to sell his New York apartment to cover the mortgage. The president asked him if he knew how much money he had made. Joel ordered an audit.

His lawyers said it showed loans of up to $1 million to Weber and his wife, signed in Joel’s name. Some were secured by the copyrights to Joel’s own songs. Joel also owed the IRS about $5.5 million, with overall debt estimated near $30 million.

“I found out I didn’t have any of the money I should have,” Joel said. “It hit me like a ton of bricks.”

In September 1989 he fired Weber and sued him for $90 million: $30 million for money he said had been misallocated, and $60 million in punitive damages. A New York judge later gave Joel a partial judgment of $2 million. But Weber was bankrupt, and Joel never collected.

The $30 million is Joel’s claim, not a court finding. What is documented is how it was possible. One man had the manager’s job, the checkbook and the family’s trust. No second pair of eyes ever looked at the numbers, and the first person to question them was a spouse, who was ignored.

Joel was 40. He went back on the road for two years to rebuild what the audit said he did not have.

Trust is not a control. A control is someone else reading the statements.

Who reads yours?

[quantfold @quant_fold]

@0x_Ito The edge was pricing Volcker’s resolve, not the recession

[quantfold @quant_fold]

In March 1980, US inflation hit 14.8%. Paul Volcker had three years to kill it. What did it cost the country?

Volcker saw inflation climbing toward 15% and feared that if the Fed hesitated much longer it would reach 20%. So he tightened and kept tightening.

The price was enormous. Rates went to about 20%. Unemployment went above 10%, the worst downturn since the Great Depression. There were protests, and farmers parked tractors outside the Federal Reserve.
He held.

By 1982 even Volcker was uneasy. Unemployment was rising, and inflation was not yet falling the way he needed. Backing off would have wasted everything the country had already paid. He held anyway.

Years later, he said President Reagan never personally criticized the Fed. Reagan understood that rising inflation was worse than the pain of stopping it.

On the other side of the trade stood Ray Dalio. He ran the debt numbers, watched Mexico default in August 1982, and bet the economy and the market would go down hard.

He was right about the debt. He was wrong about how long Volcker would hold. Summer 1982 was also when the squeeze started to work: money growth slowed, and inflation followed. By the end of the year the recession looked finished. By 1983, inflation was around 3%, and a long boom began.

Dalio had to borrow $4,000 from his father. He has called it the best thing that ever happened to him, because it taught him the lesson that built his career.

The cost of killing inflation was a decade’s worth of pain compressed into three years. Volcker paid it, and Dalio paid for betting against his patience.

Would you have held at 20%?

[quantfold @quant_fold]

@0x_Ito Don’t quit at 65. Most people are just getting started when they think they’re finished.

[quantfold @quant_fold]

Colonel Sanders was 65. His restaurant was sold at auction. He earned a nickel per chicken, then $1,000 a day, then sold the company for $2 million.

A new interstate had pulled the traffic off his road. The auction paid his taxes and bills. Nothing was left.

So he started again. At 66, he began selling his chicken recipe to other restaurants. His cut was a nickel for every chicken they sold.

“You’d be surprised how fast nickels add up,” he says.

In the video below, a 1979 TV interview, he tells the whole story himself.

Soon it was $1,000 a day. Then he sold the company. He had no one to run it after him. And he feared that “Uncle Sam” would price it as an estate, and “probably wipe it out.”

He took $2 million. His first gift from the first payment, $50,000, went to the Salvation Army.

He kept the Canadian business for a while. Then he gave that away too, so taxes would not take it after his death.

Here is how he sums up his life: “Don’t quit at age 65. Maybe your boat hasn’t come in yet. Mine hadn’t.”

A man with nothing left at 65 built a business that grew to over 7,500 stores in 51 countries by 1979.

[quantfold @quant_fold]

Warren Buffett, 1994: he said he didn’t understand Nike. Months earlier he had paid $433M in stock for a different shoe company. It became his worst deal. Why?

At a shareholder meeting, someone asked him about the future of Nike and Reebok. He said he couldn’t judge their competitive position over 10 or 20 years the way he judged Brown and Dexter, two shoe companies he already owned. “Charlie and I don’t like difficult problems,” he added. “We’d rather multiply by 3 than by pi.”

The Dexter deal was done in Berkshire stock: 25,203 Class A shares, about 1.6% of the company. Buffett wrote that Dexter needed no fixing.

Then the competition moved overseas. Dexter’s profits fell in 1995. Cheap imports took the market, and in 2001 the Maine factory closed. Buffett wrote in 2007 that what he had judged to be a durable competitive advantage vanished within a few years, and that Dexter was the worst deal he had made.

The cruel part is the currency. A cash purchase would have cost $433 million. Berkshire stock cost far more, because those 25,203 shares compounded for three decades and are now worth many billions.

The company he said he couldn’t read ran for decades. $NKE reached about $179 in 2021. This fall it trades near $35, down about 80% from that peak.

Buffett’s rule that he could not see 20 years into the shoe business was correct. He just aimed the doubt at the wrong company.

Is Nike a bargain at the lows, or is it Dexter all over again?

[0x_Ito @0x_Ito]

https://t.co/1vLnYtL1jZ

[quantfold @quant_fold]

@0xlexlab Your entry price is just a number in your head. The stock doesn’t know it, and the business doesn’t care. Holding just to get back to even is how one bad decision quietly steals years of compounding.

[quantfold @quant_fold]

@0x_Ito Respect for owning it 100%. A lot of people with far less money never get to that level of honesty with themselves.

[quantfold @quant_fold]

Dave Ramsey, 1988: $4M in assets, $250K a year, sued about 100 times. The loans were legal, so what went wrong?

At 26 he had $4 million in real estate and made $250,000 a year. By his own account he had never lost money on a deal and never been late on a payment.

Then his main bank was sold. The new owners looked at the books and saw a 26-year-old who owed them $1.2 million on 90-day notes. They called the loans. He had three months to pay.

About 60 days later, a second lender called another $800,000.

Here is what went wrong. His loans were not mortgages. They were 90-day commercial notes, and the bank could demand full repayment on three months’ notice. His payment record, his deals and his income did not enter into it. The contract gave the bank the right to call, and it used that right.

He spent two and a half years selling everything. He cut about $4 million of debt down to $378,000 and was sued close to 100 times. On September 23, 1988, he and his wife signed Chapter 7 papers on the day a sheriff was due to take the furniture, the baby’s crib included.

Debt is not one risk. It is three: the rate, the term and who holds the right to call it. A $350,000 mortgage at 6.5% costs about $446,000 in interest, but the bank cannot demand the balance early while you make the payments. Ramsey’s notes cost him no extra interest and handed the lender control over his timeline.

The question is not whether debt is dangerous.
The question is who can call it, and how soon.

[quantfold @quant_fold]

Michael Bloomberg. September 30, 1981. Fired from Salomon with $10M. Today his screen is on almost every trading desk. What did Salomon’s partners miss?

For 15 years Salomon Brothers was his entire life.
He rose from the bottom of the firm to general partner, and it was where he traded, worked and built his name. Then a takeover reshuffled the partnership, and Bloomberg ended up on the wrong side of it. He was 39.

The exit package was roughly $10 million. On Wall Street in 1981 that was a lot of money, but it was not a future. The title, the desk, the people and the routine were gone, and nobody was going to hand them back.

Most people in that position do one of two things.
They hunt for the same job at a rival firm, or they sit on the cash and call it a career pause. Bloomberg did neither. The next morning he started his own company. He took the part of Salomon that had always belonged to him, which was how he understood what traders actually needed to see on a screen, and he sold it back to the street as a product. Three of his colleagues left with him.

Notice what that means. Salomon owned the building, the capital, the desk and the logo. It never owned the skill. The $10M was the payment for the first four. The company he started that morning was built on the fifth.

He later joked in an interview that John Gutfreund did him two favors: he hired him, and 15 years later he fired him, with impeccable timing both times.

The best test of a career is not what you earn while the title is on your door. It’s what is still yours the morning after they take it away.

[racer | markets & judgment @racerhome]

https://t.co/LsR7LsogES

[quantfold @quant_fold]

Andrew W. Lo: one MIT professor, two proofs. 1988: the market can be beaten. 2007: every winning strategy gets eaten by the crowd.

In 1988, Lo and A. Craig MacKinlay published a paper with a title that read like a dare: “Stock Market Prices Do Not Follow Random Walks.” They tested weekly returns from 1962 to 1985. The random walk model was strongly rejected for the whole sample and for every subperiod.

A decade later, in 1999, he turned the argument into a book, “A Non-Random Walk Down Wall Street,” and founded AlphaSimplex Group, a quant fund he chaired until 2018.

Then came August 2007. During the week of August 6, a group of highly successful quantitative equity funds lost money at a speed nobody had seen. Most of the damage came on August 7, 8 and 9. On the 10th it partly reversed. Goldman’s Global Equity Opportunities fund lost more than 30% in a week. A $1.8 billion New York quant firm lost about 20% in its biggest fund.

Goldman’s CFO explained it on August 13: “We were seeing things that were 25-standard deviation moves, several days in a row.” Two Goldman funds each lost over a quarter of their value, and the bank put in about $3 billion.

Lo went back to the data. His answer, called the unwind hypothesis, had no villain. Many funds held portfolios built the same way. When one de-levered, prices moved against all the others. Their losses forced them to sell too, which pushed prices further, which forced more selling. Nobody’s model was wrong in isolation. The edge was real. It was shared.

That is what an edge does. It exists because the market is not random, and it expires because other people find it.

Every bot, every fund, every strategy starts that clock the day it works. Speed is necessary, never sufficient. What survives is a hard risk layer that never negotiates, and an honest backtest that does not assume you are the only one who found the trade.

Before you deploy the next strategy, ask one question: if ten more people have this exact trade, what happens when we all exit through the same door?

[Rossst.03 @Rossst_03]

Most on-chain bots lose by being fast but wrong.

The winners do three things before the block closes: detect, simulate, include.

In this article I show EXACTLY how to build an on-chain HFT bot that trades every block, from scratch. https://t.co/HYApyAT9ha

[quantfold @quant_fold]

Ray Dalio, 1982: one bet, one employee left. He went on to build the world's largest hedge fund. What did he change?

In 1982, Dalio was 33 and ran Bridgewater, a small firm he had started in his apartment. He had studied debt cycles harder than almost anyone. He saw a crisis coming, and he was right: the debt crisis of emerging markets was real and it arrived.

Then he made the call that mattered. He concluded that the whole U.S. economy was heading into a depression, and he bet nearly everything on it, publicly.

The depression never came. Stocks started a bull run. The next 18 years became one of the longest stretches of non-inflationary growth in American history.

The bet failed. Dalio lost almost all of his own money and most of his clients' money. He could no longer pay the people who worked for him, so he let them all go, one by one, until Bridgewater had a single employee: Dalio himself. To cover his family's bills, he borrowed $4,000 from his father.

Run his career through the formula: his skill was real.
His multiplier, one bet with almost all the capital, was too big. And time was against him, because the market did not move on his schedule. One term close to zero, and the product collapsed with it.

Later he said going broke was the best thing that ever happened to him. It changed his question. Before 1982 he asked, "am I right?" After it, he asked, "how do I know I'm not wrong?" That second question became the foundation of how he built Bridgewater: write down decisions, test them against opposing views, and spread bets across many things that do not move together.

He had the skill early. What he did not have was a way to survive being wrong.

The three terms multiply. Skill gets you into the game. Leverage multiplies what you bring. Time decides whether you are still there when the market finally agrees with you.

Before your next big bet, ask one question: if I am right but early, can I survive long enough to collect?

[0x_Ito @0x_Ito]

https://t.co/1vLnYtL1jZ

[quantfold @quant_fold]

Larry Fink, 1986: lost $100 million in one quarter. Two years later he started BlackRock. What did he see that the bank didn't?

Fink joined First Boston at 23, straight out of graduate school. By 27 he was the youngest managing director in the firm's history. By 31 he sat on its executive committee and ran one of the most profitable departments on Wall Street, trading mortgage-backed securities when almost nobody understood them.

His team was making more money than anyone had imagined. Fink later described it in his own words:
"We were children in a candy shop."

The problem was that nobody could see how much risk it took to earn that money. The bank had no tools to measure it. Fink says today that his team "probably should have been fired for making too much money," because the profit hid exposure that nobody understood, including him. The bank's answer to the profit was to give him more capital.

Then came the second quarter of 1986. After a record first quarter, his department lost about $100 million.

When the profits stopped, so did the partnership.
Fink says that when the team made money, everyone was a partner, and when it lost, there was no support from above. He left the firm. He says he never forgave himself.

He did not go back to another trading desk. He spent nearly two years thinking about what had gone wrong, and the answer was not a better trade. It was a better way to see risk. If investors could measure what they were exposed to before the loss, not after, a different kind of firm was possible.

In 1988 he started BlackRock, built around risk analytics. Its system, Aladdin, was designed to show a portfolio's exposure in real time. The loss that ended his career at First Boston became the foundation of the firm that now manages trillions of dollars.

In his own words: "The ashes of my failure at First Boston was a fertilizer of the beginnings of BlackRock."

Every big decision needs two numbers: what you could make, and what you could lose. Fink had the first one for years. He built a company after learning what happens when you do not have the second.

Before your next trade, ask one question: can I measure what I could lose, or only what I could win?

[Alxcapital @Allx032]

https://t.co/ZvoNew03cS