From George Gilder’s ‘Life After Google’, about Renaissance Technologies’ Medallion hedge fund:
With more than $65 billion currently under management, Mercer’s team relies on racks of Renaissance workstations linked to form supercomputers. They parse immense Markov chains of ordered data to find filigree “ghosts” of tradable correlation. Like Google’s PageRank and its Deep Learning successes with language translation and games, like IBM’s earlier speech-recognition breakthroughs, and like “Watson,” IBM’s supercomputing master of Jeopardy searches and chess strategies, it is founded on ever-faster processing of pure statistics from ever-larger databases.
As James Simons explained in a speech in 1999, “Efficient market theory is correct in that there are no gross inefficiencies. But we look at anomalies that may be small in size and brief in time. . .. We’re always in and out and out and in. So were dependent on [intense] activity to make money.’!! Their strategy is based on round-the-clock processing of terabytes of data in search of correlations that yield profit opportunities. “Some of the signals that we have been trading on without interruption for fifteen years make no ‘sense. Otherwise someone else would have found them,’ Mercer acknowledges. “But there is no question from a statistical point of view that they work”
What’s notable about this is that the fund algorithms were created and are tuned by people with no financial or trading background:
Relying on its world-leading complement of mathematicians and physicists, Renaissance “avoids hiring anyone with even the slightest whiff of Wall Street bona fides,”… Instead, it takes in vast troves of information [which] enables the Markovian system to ignore human intentions and purposes.
Contrast with this take from January 2020 on about algorithmic trading having driven down the ‘alpha’ from value investing down to nearly zero, leaving growth investing to lead returns.