[nyerp]

"But a return on investment of 200 percent per year is not very exciting when you only have a few hundred dollars in capital."

Huh? Take $500, double your money every year, and in 20 years you have over $500,000,000. Not very exciting? (And if he truly meant tripling your investment each year, i.e., a 200% return, the numbers are much crazier.) The article strains credulity for a tragicomic punch.

If you can average even 20% annual returns, you can become a billionaire within your probable lifetime, with a few years of a frugal engineer's savings as your stake. (Although the most common "self-made" trajectory from salaried to $1B is to achieve far greater than 20%/yr at the start, and much less than 20%/yr at the end.)

I'm not saying 20%/yr is easy or even a reasonable goal; but the fact that the article contemplates "200 per cent per year" returns evidences a lack of familiarity with how fortunes are actually built. Read "The Snowball" for a far more realistic account of getting to $1B.

[Pokepokalypse]

Renaissance Tech's Medallion fund has been regularly hitting 15%/yr for a couple of decades. Most sane people think this is absurd and there must absolutely be some pyramid scheme fuckery going on. But it just keeps growing. The folks who are making their buys have figured out some winning scheme that just keeps on winning.

But I doubt there's such a thing as 20% that's going to keep going over anyone's lifetime. Not by means other than criminal.

[fractionalhare]

Medallion is far beyond 15%/year. Between 1988 and 2018 they had an average annualized return of 39.1%. And the variance is remarkably low: since 1990 there has never been a year with less than a 20% return.

These figures are net. And for what it's worth, I am in the industry and I don't know any professional who thinks there's obvious fraud going on. It's possible, but you make it seem like there's a consensus that it's illegitimate when you say "most sane people." Frankly it's the other way around.

People who think the returns are fraudulent tend to be outside the industry and thoroughly unacquainted with what quantiles of returns are rare versus implausible. They usually hand wave a misinterpretation of Buffett's famous bet against hedge funds and Fama's (strong) Efficient Market Hypothesis.

[kqr]

> The folks who are making their buys have figured out some winning scheme that just keeps on winning.

I find it highly unlikely that it is about a winning scheme. In my limited understanding of these types of things, it is more likely about a succession of many winning schemes, because these things tend to stop working after a while so you have to find the next inefficiency to exploit.

[tim333]

That is true with Medallion. They run hundreds of different strategies and put money in the ones that are working well.

[triangleman]

Well Buffett is 90 years old, so there's one example of a lifetime of 20% CAGR.

[fractionalhare]

It's true Buffett had an average annual return of 20.5% between 1965 and 2018. Soros had an average annual return of 32% over about the same time period.

Both of them have been underperforming in the last decade or so. Medallion is still radically outperforming, however.

[njarboe]

Medallion has about $6.4 billion in assets and they have kept it about that size for quite a time for a reason. It would be much harder to get those high returns when trying to invest $100 billion like Buffet tries to do.

[fractionalhare]

They're actually hard capped at $10B, up from ~$5B a decade or so ago. But you're right, they are thoroughly capacity constrained. Pretty typical for quant strategies in general.

Based on what I see from quant prop trader friends of mine in the Chicago area, if Medallion was an order of magnitude smaller they could probably juice their returns up to 150-300% pretty reliably.