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.”
GM: Thank you very much for sharing with us
Vangelis
Maderakis. Please visit him at Logical Invest and his blog Sanz Prophet.
