Career Advice For Quants

I added an outstanding post to the top of the Moontowerquant Career section.


Version with my emphasis:

🔗Buy-Side Quant Job Advice

I read it a few times. It’s both amusing and practical.

Landscape

  • Every firm is a bit like Orwell’s “Animal Farm”: all employees are created equal, but some employees are more equal than others. In PEs and VCs, quants are not at the core of the business, and in a good portion of asset managers, pension funds, and family offices, quants are not working on the most exciting problems. You probably want to begin your career in a place where quants are first-class citizens and are using their brains. I will focus only on hedge funds and prop trading firms.

  • the top 20 hedge funds have generated 19% of the total profits (out of maybe 50,000 HFs). In the past three years, the top three hedge funds (Citadel, Millennium, DE Shaw) have generated 38% of the total PnL.

Recommended Reading

  • Subscribe to Matt Levine’s “Money Stuff” newsletter; read his past articles too. They are informative, funny, and have aged well. They are free. They are just too long.

  • Read a few entertaining books for fun and profit: “My Life As A Quant”, “Against the Gods”, “Red Blooded Finance”, “The Education of a Speculator”, “The Man Who Solved the Market”, “A Man for All Markets”, maybe a Taleb book (but don’t take it too seriously).

  • People ask brain teasers, and I can think for a couple of reasons. First, to probe basic modeling and math skills. Second, because it is a focal point: everyone knows they are a likely topic. So I am not testing your intrinsic ability to solve a puzzle, but your ability to learn about puzzles. And there is a pattern to puzzles, which can be learned. Work through all of Peter Winkler’s books. And various firms, including Jane, IBM, etc. have puzzle sites.

  • Applied probabilistic modeling and statistics are very important skills to have. Physics is still a good major to hire from, because it is a model-based discipline, as opposed to a technique-based one, and you will be exposed to many models. Take classes at the MS level. Read at least the following books:

    • “All of Statistics” (both volumes) by L.Wasserman

    • “Applied Probability Models” by S. Ross

    • “Convex Optimization” by S. Boyd and L. Vandenberghe

    • “Numerical Linear Algebra” by Trefethen and Bau

    • “Linear Algebra and Learning From Data” by G. Strang

    • “How to Solve It” by G. Polya NoteI don’t recommend any finance book. You’ll learn on the job.

Read the following three essays. They are short and full of useful advice.

  1. You and your research by R. Hamming This is the most practical of my recommended readings. Please read this over and over again. My favorite sentence is: “I started asking, ‘What are the important problems in your field?’ And after a week or so, ‘What important problems are you working on?’ And after some more time, I came in one day and said, ‘If what you are doing is not important, and if you don’t think it is going to lead to something important, why are you at Bell Labs working on it?’” If you have time, read “The Art of Doing Science and Engineering: Learning to Learn” by the same author

  2. Real-life mathematics by B. Beauzamy. By a mathematician actually doing applied mathematics. Favorite sentence: “Real-life mathematics does not require distinguished mathematicians. On the contrary, it requires barbarians: people willing to fight, to conquer, to build, to understand, with no predetermined idea about which tool should be used.”

  3. Ten lessons I wish I had been taught by G.C. Rota. Although this is a bit more academic, it is extremely useful. For example, the first item is on “lecturing”, but it’s really about communicating ideas effectively. Favorite lesson (from Feynman, actually): “You have to keep a dozen of your favorite problems constantly present in your mind, although by and large they will lay in a dormant state. Every time you hear or read a new trick or a new result, test it against each of your twelve problems to see whether it helps.”

Non-obvious points in the essay

  • non-alpha related jobs can be extremely intellectually satisfying. Thinking about data, execution cost measurement, optimization, risk–these are all very deep subjects and you can have a great and long career in any of those. The road to hell is paved with mediocre alpha researchers who did not achieve their goals and burned out by the early 30s. Maybe a life of purpose is not the first thing that comes to mind when working in finance but, as much as it is in your power, pursue it.

  • As a pet project, over the years I have asked many (many= 50-100) successful traders, algo developers and portfolio managers what makes a great analyst for their team. The answers have been remarkably consistent.

    • Curiosity. People who read articles and scientific papers on their own, maybe during weekends, for the sheer pleasure of finding things out.

    • Creativity. Like obscenity, hard to define but easy to tell it when you see it. I guess, something like this: looking at the same thing everybody can look at, but noticing something different, and proposing an original course of action. Most ideas do not survive scrutiny, but a few are brilliant.

    • Humility. When something does not work, admit it early and openly, examine the reasons why, and move on. In practice, humility (as described to me) is both willingness to take responsibility and openness to experience.

    • Integrity. Following the letter and the spirit of the rules– the team’s, the firm’s, the regulators’.

A few personal comments on this list. First, these qualities are highly correlated; their definitions even overlap. There’s a single trait that perhaps explains 85% of their occurrence. I can’t determine whether this trait is innate or cultural, but I’m fairly confident that by the time you join a firm as a researcher, you either have it or you don’t. Interestingly, not a single person highlighted “capability”, “mental throughput”, or “puzzle-solving” as a quality; yet, we partly select based on the ability to solve puzzles—go figure. In fact, many people I interviewed said that everyone can proficiently perform [task x] or work hard to execute instructions. Also, no one mentioned soft skills like empathy, communication skills, etc. Indeed, some of the very best investors I know, while being very good people at heart, have the social skills of a thermonuclear reactor. Finally, every manager I interviewed sees their employees as researchers, not soldiers or doers.

  • Scout Mindset

    Maybe this is a good time to recommend a book on this subject: “The Scout Mindset” by Julia Galef, which explores the differences between explorers and soldiers.
    [Kris: See A Few Blurbs From Slatestarcodex’s Review of Scout Mindset]

  • You can be successful (especially as an alpha researcher) in one of two ways.

    1. First one: You identify a completely new opportunity. Example: Gerry Bamberger at Morgan Stanley in the 80s developed statistical arbitrage. Also in the 80s: the early index rebalancing strategies, and convertible arbitrage.

    2. The second one: You apprentice in a team that has a successful strategy, learn the trade, and improve it marginally. Unsurprisingly, the overwhelming majority of successful traders belong to the second class. The lesson: try to join a team and a firm that has a habit of being successful. Don’t think you can make a huge difference, and don’t fall for the poetry of the underdog.

  • Don’t be paranoid. No one is going to steal your idea. The real risk is that they will not even listen to you.

He ends with a statement that I feel goes from insightful to cliche back to insightful for each decade you’re in the business until your 50. At which point only the sociopaths, alimony payers, and overly fertile still remain. (Calm down, I’m mostly kidding)

A final and non-strictly professional piece of advice: you will spend more time working with your colleagues than with your partner or spouse or family. If you have to suffer at work, try to suffer successfully by sharing a strong common purpose with your colleagues, then by pursuing it in the best possible manner. The accumulated wealth from having worked at several firms will not come from your W-2s, but from the relationships and friendships you will have developed along the way.

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