![Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41]](https://megaphone.imgix.net/podcasts/1a358028-ccce-11ed-87bf-8b0959fd5545/image/Var_2.png?ixlib=rails-4.3.1&max-w=3000&max-h=3000&fit=crop&auto=format,compress)
Invest Like the Best with Patrick O'Shaughnessy
Leigh Drogen - Quant vs Traditional Investors and How Alphas Become Betas - [Invest Like the Best, EP.41]
Conversations with the best investors and business leaders in the world. We explore their ideas, methods, and stories to help you better invest your time and money. Hear stock market and boardroom insights you can't find anywhere else. If you're a professional investor, CEO, entrepreneur, or business strategist, this is for you. Explore all our episodes and learn more at https://www.colossus.com
Show Notes
Tap timecodes to jump
I’ve often joked that this show should be called “this is who you are up against,” because I am so often having conversations with brilliant people across the investment landscape who are effectively my competition and yours. This week’s conversation fits that description because it gives you an inside view into how things work among some of Wall Street’s most competitive investment firms. My guest is Leigh Drogen, who has worked as a statistical arbitrage portfolio manager and who founded and now runs Estimize, a data company which works with some of the world’s largest hedge funds.
Our conversation centers on the massive shift from what we call discretionary portfolio management—basically stock picking—to a landscape that is increasingly dominated by quantitative investors of various types. We talk about how any investor might hope to earn alpha, and how doing so is harder and harder.
There are so many great stories in this episode, told by someone with the perfect career experience to know how the system actually works. After many episodes where I’ve been learning on the fly about topics like venture capital, permanent equity, or health, this episode marks a return to my world of quantitative investing. I think you’ll learn a lot, and that you’ll likely finish with an even deeper appreciation of just the type of investors that we are all up against.
Books Referenced
Revenge of the Humans: How Discretionary Managers Can Crush Systematics
Links Referenced
The Undoing Project: A Friendship That Changed Our Minds
Force Rank (App)
Founder of Estimize Explains How He Plans To Disrupt The World Of Wall Street Research
Show Notes
– (First question) – A look at Leigh’s early career and how he got started in investing
– Revenge of the Humans: How Discretionary Managers Can Crush Systematics
– What happened when things stopped working towards the end of 2007.
– The proper dimensions to separate any sort of potential Alpha edge
– The traits that help a fund perform well
– The Undoing Project: A Friendship That Changed Our Minds
– Force Rank (App)
– How the scientific process plays into Leigh’s research strategies
– Explain what Estimize is and what it does
– How people are compensated for the estimates
– The scale of how many estimates they get per company
– Why you need to be part of this informational arms race if you hope to survive
– What happens if everyone buys Estimize data and the Alpha built into it goes away
– What has been the evolution in these hedge fund platform type companies
– If Leigh was designing a firm from scratch, what would it look like
– Understanding Numerai and crowdsourcing in funds
– What is an example of interesting data set that Leigh as come across
– What is the potential for a hybrid model between a quant only with a discretionary picker.
– How do you know when something is busted or broken?
– Exploring his most memorable individual day in his career – Flash Crash
– With all the algorithms and automation, will we continue to see more of these unforeseeable dislocations like the flash crash?
– Bloomberg article about passive investing rates
– What is Leigh most excited about the future
– Kindest thing anyone has ever done for Leigh
– Founder of Estimize Explains How He Plans To Disrupt The World Of Wall Street Research
Learn More
For comprehensive show notes on this episode go to http://investorfieldguide.com/drogen
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
This episode is not processed yet. Sign in to queue the transcript and make it useful for search and Q&A.
Sign in to queue transcript (1 credit)
Free to start
Skim the episode first,
Skim the episode first,
then decide if it is worth listening.
Sign up with Google in one click. 10 transcript credits included. No card needed.
Google sign-in · No credit card · 10 free transcript credits