More Turbulent Times in Quant Land – The Game of Life


Our last Article mentioned how Dr Emanuel Derman had suggested that Models were like Metaphors. And today we wanted to explore a few of these metaphors to see if we can find the most “Hidden” Quant Influencer out there. Everyone has their usual suspects in mind, but we find that those most visible are not always those who are the best Superheroes…

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John Conway famously commented on his “Game of Life” Theory, suggesting that to have something born it needs 3 parents – one of the more interesting suggestions I have seen for a while, and strangely comforting to read. Perhaps one of those parents is the person who has the most impact on our lives in our formative years? If this is our first metaphor, then I know that George Soros had a profound impact on me, not quite as much as a third parent. Hearing live reports about him from my parents during the first recession I ever saw on Black Wednesday back in 1992 was really the first time I was subjected to the ruthlessness of the financial industry. The story of what George Soros’s shorting of the Pound did to thousands of households in the UK seemed very Robin Hood to me at the time, especially as I noticed his heavy investment into the Central European University in Budapest and other initiatives the Open Society was undertaking almost immediately after he took so much of his investment portfolio out of the UK market.

But returning to John Conway for a moment, let’s just review what he mentioned about his Theory: ‘We called it “The Game of Life” because some of the ideas we took were from real life, so starvation and isolation were considered. The Theory itself was a terribly simple version of real life’.

Unfortunately, John passed away recently to the deadly Virus, but his mathematical genius will continue to survive, as well as inspire many in the future. 

Some have even been dedicating Game of Life type simulations to Conway during their Lockdown, creating a subsection of those modelling the potential outcome of the Virus.

Keeping up with the discussion on those who we look up to or who influence our lives as the proverbial third parent. Discussions related to Football players wages, Bankers Bonuses and even Comrade Britney’s calls for wealth distribution have once again thrown the gauntlet down to our traditional influencers like Bill Gates and Jeff Bezos.

Undoubtedly many of them have taken sacrifices to ensure the survival of our global economy, but they are just as important to how we lead our lives as John Conway himself, if not more. And every day there are comments around this. If you haven’t followed @VisualCap on Twitter yet, then we highly advise you to have a small peruse of their content as many of the top Fintech Influencers have been recently. The collection of maps and graphs and infographics on their feed is highly impressive and for those of you who like reading the Guardian it may well be a good place to top up some of your research.

The more Turbulent Times in Quant Land are upon us.

The leading expert speaking on behalf of the White House recently said that we can expect 200,000 deaths in the US from the Virus. While Neil Ferguson, professor of mathematical biology at Imperial College London says this number will be nearer to 2.2 million with half a million in the UK alone. Widely varying predictions about the same Global Pandemic and its’ repercussions on the normality we are used to. Personally, I prefer my predictions to be a bit closer to the first prediction, however one thing we have all learned watching the White House recently, is that things may change, and they may also be changed dramatically, with a little bit of disinfectant thrown in.

The same cannot be said of predictions for Oil prices, once Data was even touted as the new Oil, but perhaps this metaphor is not going to be strong enough going forward. With Oil predictions appear to be a little nearer to eachother than in the case of how many victims there will be to the Virus. Where the U.S. Energy Information Administration (EIA) is predicting $46 per barrel by 2021, others like Tom Rodgers are even suggesting investing in BP and Shell right now. Others disagree and there are even those who say that Oil could drop even to $5 a barrel, the lowest level since 1973. Generally, the outlook can’t get much worse in this area. Perhaps the fact that the prediction for 2021 shows us a potential increase in the price of a barrel is also a good thing. This may be a hint of a potential Coronavirus Exit Day happening before the end of 2021 – again, not ideal, but better than 2025 after 10+ waves of the Virus hitting numerous global communities that might be another outcome of this Virus, its’ phases and even its’ mutations.

The FTSE 100 on the 19th of February stood at 7,457 points, whereas by the 23rd of March it had almost halved down to 4,993, and today we are back up almost 1,000 points to 5,958. I still remember when the FTSE 100 hit 4,000 back in the late 90s, and the slumps of 2002 and 2008 respectively – how low will the Index drop this time on its’ Bear Run before we see a full Bull Run taking apace? Any suggestions gratefully received, and in the meantime we leave you with this rather interesting graph that @tEconomics have the ability to create on their platform.

@tEconomics is another great place to find graphics for those of you obsessed with these types of things, but not wanting the heavy interface of trading platforms such as @advfn.

Today Warren Buffett is another case in mind, his portfolio took a $5 billion hit from airline stocks in the First Quarter according to Businessinsider, and with other products in his portfolio he is probably not doing as well as normal in the first Quarter of 2020 as he predicted. Again, though, millions of eyes are following his activities online and trying to glean how best they can learn from his activities and suggestions at the moment. Arguably, though, Warren Buffett is not the Number 1 Quant in the market, that title may have to go to someone else:

Jim Simons is considered by some as a pioneer in Quantitative Finance, him and his team were already using Data Science and Algorithms before any other company or even Government in the world, by many accounts. Jim takes raw talent and mathematical acumen and develops some of the best talents in the Quantitative Finance field. Jim is another great influencer who has been in the news recently with his uncanny ability to coast the economic upheaval we have seen:

If you really want to understand how a Quant really uses Modern-day Alchemy then Jim would seem to be one of the best places to start your learning curve.

Barry Ritholtz recently wrote for Bloomberg about Jim Simons being a quant with super-hero qualities which make Simons far better, almost Olympian, compared to the rest of the traders and analysts out there. Top tip to watch or listen to Ray Dalio, Felix Zulauf, Bill Miller, Jeremy Grantham, Jeff Gundlach, Bill Gross if you want to understand a bit more about the mind of an investment machine. Jim Simons himself is far more secretive, so you may not see as much about his strategies online. Alternatively, let’s get back to the Risky Variables of our current Crisis.

In 2007 Matthew S Rothman published the Memo “Turbulent Times in Quant Land, a very apt name for a tale telling the story of the Financial Crisis. Something that leads us onto the topic of the More Turbulent Times in Quant Land which today the World is starting to get used to.

The Question remains, will the person who correctly predicts the CoronaVirus Exit Day be the best known for their contribution to Society during the Lockdown? Or will it be the person who takes this data and creates a lasting Theory for Society to better manage Phases 2 and 3 of any Global Pandemic… Either way, being Paid to Think, as many of us are in the Quant area, is a huge motivator to leave something lasting for Society.

In our last Article which will follow in the next few days, we will specifically look at what the most celebrated Futurists have to say about where our current market conditions are leading us to. And a few more anecdotes.

The question we leave you with, though, is: Will there be a Game of Life (COVID Version) or at Least a Game of Life (Economic Crisis Version)? What about a Virtual Zoom-based Game of Life you can play with your friends – anything is possible and so many more things still need to be created.

Read part 1 – “Pining for the Fjords, and something Completely Different” of our ‘Coronavirus through the eyes of a quant’ trilogy, look out for part 3, coming soon.


Author: Andy Samu