Machine + Human > Machine

Last week I had both the pleasure and the honor of participating in the first face to face Quants Strats conference in three years held in New York City. The event was packed with the brightest quant minds in Wall Street.

There were three highlights that I would like to share with you in this article:

1)    Crypto is here to stay: Within a wide range of fascinating topics, the audience paid a high degree of attention to the couple of Crypto specific panels offered during the day,

2)    Alternative Data is becoming more and more critical in the operations of Hedge Funds and Quantitative trading businesses and;

3)    The common topic of the day among panelists from all walks of life was the question as to whether Machine + Human is more powerful than purely Machine.

Given the name of the conference and the profile of the audience, I found that the question was even open for discussion beyond fascinating. And my first hint was where I was having the first coffee of the morning right after the registration.

I shared with a fellow delegate that I was sort of puzzled that I was invited to be a panelist and a moderator in a couple of panels during the day given that despite running a multi strategy Hedge Fund, my style is predominantly Fundamental.

He replied very quickly that I shouldn’t be because my participation in the event confirmed a couple of aspects running through the mindsets of the target audience:

The first is the obvious interest of the traditional financial markets for Crypto as a valuable asset class and second, the new rationale among traders that by incorporating human inputs into the quant trading strategies, hedge funds and investment firms can extract Alpha in a consistent way.

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The result of the day was very pleasant (in my opinion). Very experienced members of the financial markets acknowledged that even in the most sophisticated quantitative trading operations, there is room for human intelligence and intervention.

The reason that resonated the most with me is that, in the origin of the trading strategy, the alternative data used is generally unstructured and the “clean up” process was proven to be more complex than what we hoped.

So it appears that despite the lack of speed and capacity to escalate, we humans are very skillful in the art of understanding unstructured alternative data as input for algorithmic trading strategies.

At the end, the story so far can be written as follows: once the first wave of Alpha was extinguished, we incorporated the machines as high frequency power engines to continue with the quest but as the second wave of Alpha is almost over, the humans are back to support the machines in the third wave.