Sunday, October 7, 2018

Tulchinsky, The UnRules

In some ways Igor Tulchinsky has written an “un-book,” and it’s undoubtedly the better for it. The UnRules: Man, Machines and the Quest to Master Markets (Wiley, 2018) is a short book, coming in at about 150 pages. As Tulchinsky explains in the preface, he is a man of few words. As it is, even to get to 150 pages, he blends memoir, the history of finance and mathematics, sometimes arcane examples, and quantitative analysis. But the result is a captivating personal account of what it takes for an immigrant to succeed in the world of quantitative finance and how data analytics are changing our future, and not only our financial future.

Tulchinsky is the founder, chairman, and CEO of WorldQuant, a global quantitative investment management firm. He is also the founder of WorldQuant Foundation and WorldQuant University, which offers a tuition-free two-year online master’s degree program in financial engineering and a free eight-week module on data science.

The UnRule, which Tulchinsky admits is loosely related to the liar’s paradox (loosely because it is an empirical rule), is that “All theories and all methods have flaws. Nothing can be proved with absolute certainty, but anything may be disproved, and nothing that can be articulated can be perfect.”

This UnRule informs his investing philosophy: create many competing points of view or, more precisely formulated in the case of his investment firm, alphas. In ten years WorldQuant went from 19 alphas to 10 million! “Today a typical portfolio may contain tens of thousands of alphas; the largest may contain 100,000. To our portfolio strategists, individual alphas, which may have vectors of hundreds or thousands of securities, remain black boxes. The algorithms, logic, and intellectual property remain with the researchers; the strategists know individual alphas only as mathematical expressions of a market signal. … [A] portfolio is all math.”

Readers who are looking for the mathematical secret sauce will be disappointed. But those in search of the qualities necessary for a person to thrive in today’s financial markets will be richly rewarded.

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