Our first guest for the “Interviewing the Quants” series is Vangelis Maderakis. Many of you probably know him as Sanz Prophet through the eponymous blog (sanzprophet.blogspot.com). Recently, he became a partner at Logical Invest, a successful business dedicated to logical, rules based investing.
I’ve asked him if he would answer some questions, hopefully giving readers in the quantosphere greater insight into the mind of an online quant. So, even before we begin, please thank Vangelis Maderakis for joining us today!
(Note: This interview takes place via email and has been formatted as an article.)
GM: What experience did you have with finance before you started?
VM: Although I did start as an engineer and hold a B.A. in Economics I ended up following my passion at the time, filmmaking. I have trained as a director/producer and have directed commercials for a living. I started trading and managing money during the 2007 crisis and discovered I like the quant side of it. I have been developing systems and trading ever since.
GM: How do you develop most of your ideas?
VM: Reading books, research papers and blogs. I like to backtest all kinds of ideas. From obscure fx strategies to option strategies that sound ‘logical’ but do not stand up to scrutiny. At one point you realize the market is just a sum of all participants and will adapt onto itself. Then you start asking simple questions: How will the rise of Wealthfront and other similar services affect the market? Or as a private investor what are my advantages vis-à-vis the larger players or even ETF issuers?
I believe there are good ideas to be found in the public sphere. Like in many areas of life the difficulty is not in finding the idea. It is in actually deploying it into the real world. Many people will stop at the first stage.
GM: What inspired you to write a blog about finance?
VM: The quant blogging community. People like Michael Stokes of MarketSci who was not just enlightening but also entertaining. I also felt the need to reach out to other independent minded investors and bloggers and exchange ideas.
GM: What is the most essential or fundamental lesson you've learned from the markets?
VM: To have a plan or strategy. To simplify. To be patient. To think outside the box. To try not to lose rather than trying to win. Also I have learned that markets are counter-intuitive and extremely unjust. It’s like flirting. Trying too much does not guarantee success. You need to be open minded and flexible. You need to care. But you cannot be desperate.
GM: What is your favorite type of market and why?
VM: A sideways moving market. From a risk management perspective, a bull market is as challenging as a bear market. A system developer who is conservative will likely underperform a straight bull run because they need to protect the account from a possible unexpected event.
In a sideways market one can trade with less risk since the average participation time is usually low. So from a risk management point of view, a side market can be desirable given one can find the system to exploit it.
GM: What are ideas you find yourself returning to again and again?
VM: Under-deployment of funds and mismanagement of the ‘big-picture’. That is my most common concern.
A private investor will likely split up their available capital and buy different kinds of assets, strategies, individual stocks, etc. It’s a natural instinct to diversify and not put all eggs in one basket. The problem is that there is no easy way to tell how her whole portfolio behaves. Is it truly diversified? Is she deploying all available capital or risking too much in small risky instruments while the bulk is sitting idle in cash?
So what I find myself looking for is a ‘total’ strategy that supersedes sub-strategies and can track and adaptively allocate to them. A meta-strategy of strategies. That is one of our goals at Logical Invest.
The other idea is more philosophical. I find myself thinking that in trading as in life, the main truly scarce and non-tradable asset is time. Since investment is really a compounding game, any mediocre young investor will most likely outperform by a large margin anyone who is double his age. Of course the young investor doesn’t know this. So the older person needs to guide him.
GM: So that the younger person is able to utilize those extra years wisely?
VM: Yes. It would be smart to invest early on but one doesn’t even need to be that smart an investor. I would argue that on a 30+ year timeline being mediocre is sufficient. The assumption, of course, is that the money survives the course of unpredictable foolish human passions, socio-political changes and all the things that hopefully our kids will get to experience that are more interesting than money
GM: How did you come to join Logical Invest?
VM: As a quant blogger, I was exchanging ideas with Alex and Scott. Part of those ideas were testing Frank Grossmann’s strategies. Eventually we met Frank and he invited us to join Logical. So over at Logical, we still develop strategies but now we can be challenged and disciplined into a steady flow of production. It’s quite exciting. We feel we are operating in the fringes of the financial world offering institutional+ level strategies for $30. It’s quite outrageous, really. Some of our subscribers are wealth managers. Recently a lot of physicians have joined. So you can say that at this point we cater to self-minded, educated individuals.
GM: Do you have any final thoughts for readers?
VM: A quote by Dennis Richards:
“I don’t think trading strategies are as vulnerable to not working if people know about them, as most traders believe. If what you are doing is right, it will work even if people have a general idea about it. I always say you could publish rules in a newspaper and no one would follow them. The key is consistency and discipline.”