Editor's note: He is fighting numerous financial career in the United States in the Chinese, he also is a member of the Chinese securities firms. Four-year experience of U.S. hedge funds, so that he fully understand the meaning of Wall Street, but also reflects U.S. stock market the real pulse of the last four years.
from today, we rolled out in phases, seems to be brewing in Shenzhen, a full swing of summer. As usual, I'm still working Junan Securities. brother called me and told me to have a letter from the University of Kansas, looks a bit thick. I did not care, Because I had already received some U.S. college admission notice, but do not have enough scholarships. did not think it is exactly this letter changed my life.
This is a Department of Mathematics from the University of Kansas PhD students sent to the admission notice and provide full scholarships.
I hesitate, do not know should not resign from Junan study in America? I was self-employed in the Ministry of Junan bond trader for that year hot bond futures market to make my career became the most popular career. As a trader, I witnessed the Treasury securities futures trading nations collapsed. and we Junan self-government bond futures market, the Department never made a brilliant victories . self-Manager Xie Xuefeng have privately revealed to us that, as I and another bond trader Wang Zhihua's outstanding performance, he has to fight to the reporting requirements of the above awards us.
but I have to leave the I always dreamed of occupation. Although I knew there was a Department of Mathematics, University of Kansas, graduated from Stanford, Dr. Duncan, random processes quite accomplished, and random process is the mathematical basis of modern financial theory, Duncan mathematical finance professor has published a number of high level papers. but still it is Department of Mathematics, after all, a non-elite non-class University of Kansas. mathematics graduate is able to re-enter the financial investment industry has become what I was most worried about.
1995 年 26 June day, I embarked on a flight from Shanghai to the United States.
from the map found in the central United States, University of Kansas, a small town of Lawrence (Lawrence), the school from the airport about a half hour away. to the first day of school, a professor at Taiwan University of Kansas, led me to lap up the various departments. On the way, he specifically told me I should go to Meet about Professor Deng Ken, because the Department of Mathematics, University of Kansas is not longer than the statistical research, so Students learn statistics are not very interested in origin (by the way, I graduated from Fudan University, Mathematical Statistics major). But Professor Deng Ken found out that my financial background I teasing Road spade less urgency and mold shallow soil e fat brag To subtract upheld both ∥ Shake N Yititundi Chidibanxin Mutangzhongqian 5S Qiansixiatang Kuanghuanxianzhang Yijianpianpangmie Chunchuisixia Gouyunyaopa Juexieyueyin thin S Xueqianyichuang suffering Balangtuba T boil basket for trapping fish hook straight male figure first グ Ben Kui Jing gp pump wire jurisdiction drip glaze?
Professor Deng Ken first met in his office, when I introduce myself, after some, Professor Deng Ken is very pleased to once I said: of course, is nonsense and Professor Deng Ken shelves immediately handed me a paper out: impression, I thought: calves are not afraid of tigers, a In 1900, French mathematician LouisBachelier pioneered the first time in history, the random Brownian motion applied to the equity research, five years after Einstein published his famous paper about Brownian motion. Since then, the random movements of stock been adequate in the financial sector development, especially after the 70s of last century theory of options and the development of asset prices can be said that Wall Street has created a thriving today. It all originated in the recognition of the randomness of stock prices.
remember me speculation in stocks or bonds in the country when you popular technical analysis, technical analysis, there is a fundamental assumption that: demonstrates a simple experiment, in this experiment, we randomly simulated stock price, we toss a coin to decide the next day the stock price changes, the ebb and flow rate determined by a random normal distribution. Each group of data we have simulated thousand days in the stock price, and this has a thousand time series data in accordance with normal paint, like stock charts drawn. We will be surprised to find such a complete simulation of randomly generated and real stock price movements very similar to the stock price movements. You can simulate the stock price chart is very easy to find technical analysis pattern advocated by, for example: increase (decrease) channel, shoulders top (bottom), arc Quanding (bottom), jump up (down) and so on. but our data because it is completely random, and if we use simple technical analysis, the error is obvious. we continue this experiment, this time we have five sets of simulated price trends, and then selected from the Dow Jones index of a real stock price, we have this confused with the six groups of charts, and then let the professional financial experts to find out which one is the real stock trend. our results, these experts choice with the results of random selection, there is no statistical difference.
this classic experiment is not our own invention, and it was repeated in the world financial community many times.
(of 1995 from Junan study in the United States Securities and resignation, in May 1999 into the hedge fund MQA, later became a partner in the hedge fund, in April 2003 as senior financial analyst to join Star Finance Corporation No Juan lava vaStarFinancialCo ..)
special essays Wang issued the first fruit instant, I am studying full year in Kansas, I started a new dream: to enter the U.S. financial sector.
for a poor student like me, the expensive tuition fees as an insurmountable MBA the mountain. I began to apply Dr. Jin Rong Department, because that Dr generally provide scholarships. This is fortunate, because research experience at the University of Kansas, I was soon at Washington University in St. Louis, PhD, Department of Finance admitted. Washington, DC University has twenty Nobel Prize winners. This university lure of high salaries of many world-renowned scientists, such as the financial system's DiBona Ludwig (PhilDbvig) Professor, DiBona APT model under the tutelage of founder Ludwig If Sri Lanka (SteveRoss) Professor, twenty-year-old graduate and is the less than three years old tenured professor at Yale University, once refused to Wall Street, Lehman Brothers, the annual salary of one million dollar contract and reputable. University of Washington that it would like to left Yale University, immediately with the annual salary of three hundred thousand, and promised to reduce his schedule as much as possible to meet the desires of their research, when the annual salary of creating a record U.S. professor of finance.
before leaving the University of Kansas, I math Department of the students boasted: risks and rewards of science from the University of Kansas, University of Washington
only four or five hours by car. I get to school immediately after the call a few senior, discovered after some exchange of mathematical skills you extraordinary brothers, two of them actually have a mathematical PhD. One senior told me that school finance in the United States, in particular, asset price theory, the mathematical level of at least Master's level to reach, or difficult to survive. I had to lament their own .
days later the level of tension can be imagined, in that in three years, I very seldom home before midnight.
sweat certainly not in vain. I really understand Finance is the study of the relationship between risk and return, important question: If I am right, then I won the money I bet, from the beginning the next bet a dollar note. If I am wrong, then would lose the money I bet, but I'll bet I followed all of the money lost combined, plus a dollar, so you can ensure that the next time I guess, I not only earn back all the lost money the past, and plus the profits of a dollar.
is a pity that DiBona Ludwig Twenty years ago Professor proved that the The. Before long, investors will have no capital can be the real world, the nations from China to Britain's Pakistani Mitsubishi Securities Bank, the number of examples of this are free to come.
there is a investment called ; double strategy victim
John. Marinelli outside Ze (JohnMeriwether) Salomon Brothers on Wall Street was a partner and vice chairman, personally and global bond market trader risk control management. The Wall Street of the 20th century's 80 most situation People were called the market more efficient. poor forced to resign.
1994, the Merry Ze outside the former Central Bank Deputy Governor Joint David. Mullins, and two scientists won the Nobel Prize co-founded American Financial Long Term Capital Management (LMCT) . LMCT1995 43% of net income, earnings in 1996 41% 17% 1997 earnings .1997 soaring 33% S & P, Marinelli outside Ze such he in 1998 adopted the billion dollars to 47 billion U.S. dollars lower, but still pass the District LMCT 4.7 billion of capital to buy the same in 1997 as 130 billion U.S. dollars of financial assets, which means that LMCT jumped to leverage their investments promoted to 28:1. < br> 1998 years Ⅴ June, the storm began to come, the bond market mortgage down to LMCT loss of 16%, LMCT reduced to 4.7 billion of capital from 40 billion investment into the 30:1 leverage from 28:1. Misfortunes never come singly , Aug. 17, the Russian government announced a freeze on repayment of all bonds, the blockbuster caused the credit crisis, investors sell wild stocks, corporate bonds, foreign bonds, mortgage bonds, buy U.S. Treasuries, and all this with the Micrel Ze's hope for outside runs counter to just one day August 21, LMCT net loss of 550 million U.S. dollars. the end of August, LMCT net loss of 52%, while the total assets of leveraged buy is still in the 126 billion, investment leverage change at this time became 55:1. at this time outside the Ze Marinelli has wits, they resorted to a extra investment, the standard from the 28, LMCT net loss of 92%, only 400 million dollars of capital investment for the 250:1 leverage at this time. As LMCT lending funds and transactions in major financial institutions around the world, carrying on a total of more than sixty thousand pen transactions, the book value of up to 1.25 trillion U.S. dollars, no one dares to imagine LMCT may lead to the collapse of much of an impact, the U.S. central bank for insurance purposes, had come forward to organize a rare 13 Wall Street, big banks join forces to take over 36 billion dollars in temporary custody of LMCT this mess.
Two years later, Marinelli outside Ze comeback, setting up (Bloomberg) posted on out website.
soon I received a phone Edward, Edward was being set up a stock hedge funds, a much-needed experience in the financial markets both computer knowledge and know people. I immediately think the opportunity to to the creation of a new company has always been my dream, maybe I can plan a big financial company to a higher wage job, but the creation of their own financial companies in the United States experienced, but golden for me opportunities. to participate in the creation of hedge funds would make me really into the stock trading operation, rather than the majority of Chinese students while nominally on Wall Street, but actually only doing the back office computer programming or analysis.
I embraced the work of Edward contract.
MQA
1999 年 5 to join the end I left the University of Washington School of Business, came to the U.S. eastern Connecticut is a beautiful seaside town Feierfeide (Fairfield). Philippines Er Feide only one hour from New York City by car, Feierfeide under Feierfeide County, the entire Feierfeide County known as Feierfeide County, Connecticut has become America's most affluent state. LMCT was mentioned earlier is Feierfeide Greene County town of Albion. Connecticut is well developed financial sector, hedge fund spread.
Our MQA company is in such an environment, the former Wall Street climb due to outside Bo (PaineWebber), president of Tang. Nicholson (DonNickelson) funded the establishment of Mr. Edward as a general manager responsible for daily management. First day of work, Edward said to me: published an article, our model is to be the market do the real test, this model is the basis of our entire fund He soon found that technology is know little about, I soon realized that the whole development tasks will basically have to take me to one person. every time I think I will have millions of dollars of capital will take this model to investment, the pressure can be imagined. the long development process is painful but full of hope, when I tried to think of the method is detection proved unreliable, can not help but produce a transient sense of frustration, when I will leave the computer in the back yard of the applied to the actual market transactions, we found that although the rate of return is much higher than stock index returns, but the volatility of returns is very large, which is the concept of risk I mentioned earlier. Although Nicholson, the more we urge and more and more, after many times of, we still think we should postpone the start fund investments should be in our system model to add technical analysis to seek to reduce the volatility of returns.
data manipulation and sample selection bias < br> In the kneading and technical analysis to fundamental analysis of the process, I once again feel the misunderstanding that many investors often enter: one-sided analysis of subjective analysis.
investors for analysis of each study are often encounter such a phenomenon: a person will tell you he found a new technical analysis indicators technical analysis indicators that will help investors to profit within three months, up 100% and so on; then he will show some stock price chart, in those charts, this technical analysis indicator did show a striking ability to predict. But the real use of investors in the market when the technical indicators, most of the results are unsuccessful, the Technical Analysis amazing ability to predict target disappeared.
the next three years, I used the computer program detected a total of no less than hundreds of technical indicators of the effectiveness of each indicator I use to at least 2000 kinds of testing the effectiveness of U.S. stocks go up, to minimize sample selection bias, and in order to reduce the data manipulation, the general refused to fine-tune the index parameters. My test results show that 95% of the so-called . For those who initially found to be effective indicators, I also adjust the parameters used to detect the index of reliability, my experience is: does have some technical indicators forecasting ability, particularly when a number of technical indicators to use especially when cross- . But as we can not find investment, I know that Edward and Barry on the market I feel is not entirely convinced that the experience I had all of the real market experience from China, for many U.S. investment companies, when the Chinese experience, When investors enter the market, the most fundamental purpose is the risk as small as possible in the case of the maximum possible profit, this will not change in isolation from the Pacific Ocean.
, of course, I knew I had to results to change their stereotypes of us, they generally believe that the Chinese people in Wall Street, management analysis, and programmers can only operands.
advantage is that small companies are basically that everyone can easily participate in other departments I attended every day within the Fund investment conference, meeting, they arranged for me to analyze only the Fund's investment risks, because all systems are I created the risk. But, our investment model system is established by me, I am the only one of the tricks most clear, in the direction of investment and stock options Taolun, I tried to seize every opportunity to clarify my ideas, in fact, these ideas are my prepared in advance. I take full advantage of a comprehensive knowledge of specialty, and blend an objective mathematical analysis and my many years of market experience. previous occasions, they just politely praised a few, then they finally realized that my idea of the proof of the market many times. At one point, Edward and I directly refuted Barry the two judgments, when I confidently state my analysis and forecasts, I could feel They are surprised.
Since then, the investment conference, I will become one of the protagonists, of course. Edward started decided to fund another five million dollars to open a sub account under my full control, the two of us being made up the ante in the joke: Who's account monthly rate of return, will win a beer. Since then, I am also wondering market movements in sleep, always remind myself: technology, while a more important factor: a valuable market experience. A year later, I won there from 9 Edward beer. then I gradually increase account control, may affect the maximum 75% of the funds.
random
market fund transactions in our transaction deserves a few memories. when our model system on Enron's financial condition and stock price analysis of similar stock, Enron is expected to be at 18 dollars per share price of about , in 2001, our system in the analysis of market trends, finally issued a buy signal space, when Enron was Wall Street's pet, even if the stock market has dropped more than a year in the case, its stock price still is 60 yuan. We special meeting to discuss Enron stock, and finally decided to buy blank. In the same year by the end of October, when the Enron financial scandal broke, we closed at 13 dollars, 47 dollars per share net profit. Maybe someone will pity we have not dropped a dollar less in the later When open, but I personally think that our approach is consistent with the principles of proper risk management. the stock market had a famous saying: to a serious situation to the point that even in retrospect, the largest U.S. securities firm Merrill Lynch is still published analysis reports that Enron will survive.
accounting scandals like this sudden event, investors are unpredictable, and this is the randomness of the market.
we decided to open about 13 U.S. dollars, is the full account of Enron's stock plunged after the oscillation will certainly increase significantly, which means that if we continue to have Enron position, will assume a huge risk, which is not consistent with our principle of the Fund's risk control.
at Kmart (K-Mart) the company's investment did not achieve results, K-Mart is second only to Wal-Mart the second-largest U.S. department store retailer. then all the way Wal-Mart's stock price soaring, Kmart's stock price all the way down to the point where only a few dollars. We analysis that Kmart will bounce back, but we buy into after the K-Mart stock is still falling, and we quickly liquidate the city, too late. We tracked down the cause of Kmart stock, and finally found that because the United States since 2000, many companies closed down, many telecommunications companies in particular psychological closure to investors cast a dark shadow, investors generally inconsistent with a large number of bonds that the company, Kmart to such a case. Once the poor management of these companies, investors tend to shy away, the company's quarterly report does not will reflect these changing market mentality, which also shows the analysis of rigid investment will only cause damage. Later, Kmart declared bankruptcy, we are fortunate to market as soon as possible. long-term based on the market an important factor. including Northwest Airlines, Continental Airlines and several insurance companies stocks, the stocks we buy empty completely based on our financial analysis of these companies and the market analysis.
9 17, the stock market re-opened after the day of our 2% of the fund earnings, which we have such a market-neutral and do not use any leveraged investment in hedge funds, the equivalent of a two-month return rate. But the mood that day each of us are very heavy, and I hope I earn does not come from the cost of thousands of lives. We have always taken for granted that this kind of thing is very far away, but who become like it suddenly appeared in front of me, I am shocked. I often scared to think, if that day I happened to work in that building two, or our company at the time in there, I will for the mere 2% of the profits cheer it? I hope the future world peace forever.
CDO structured finance in financial belongs to a class. the so-called structured finance that is through a combination of many financial instruments to re-create new financial instruments, new financial instruments created with the same the original risks of different financial instruments and the reward structure, these new financial instruments would be more suited to the needs of investors. Suppose we have 100 different enterprise risk bonds, which 100 enterprises due to poor management, they have 30% bonds possibility can not be repaid. the limited funds as investors, investors may only purchase a bond, if investors buy only one single enterprise bonds, investors may not even have 30% of the principal money back, and no investors willing to take such a big risk. But let's put it another thought, we all know the statistics of large numbers theorem, if we put 100 different corporate bonds together, under the Laws of Large Numbers that only a maximum of 100 kinds of bonds 30 can not return the loan at maturity, which means another 70 bonds will be no risk, and the problems we face is not known until the maturity of bonds which will have capacity of 70 bonds withdrawal. To solve this problem, we risk to 100 species of these bonds as collateral to a new portfolio of bonds issued, the new total bond portfolio of bonds, including 3 levels:
first grade bonds accounted for all the bonds 60% of portfolio, bank guarantees issued without any risk, and have been the first priority of any return of principal and interest companies. As the first investment grade bonds is essentially no risk, relatively low interest rates accordingly.
Second grade bonds accounted for 10% of all bond portfolio, the level of any business to have a second priority to get the return of principal and interest, that is only the first level of debt repayment after all, only the second grade bonds to make any return of principal and interest companies. The second level of bond investment has some risk, but the risk is much less than the risk of individual bonds to buy a business, so its level of lending interest rate is higher than the first, but the company paid more than to the bank's interest to be much lower.
third grade bonds accounted for 30% of all bond portfolio, the level of priority has been the final return of principal and any business interest, that is only the first and The second level of debt repayment after all the third grade corporate bonds in order to make any return of principal and interest, so the third level of the risk of bond investment has to be higher than the previous two levels.
this way, banks With this new bond portfolio, selling its own account the risk of a large number of bonds. This bank has many benefits: 1) risk transfer: Bank transfer of risk investors are willing to take risks; 2) risk-free profit: As The new bond portfolio significantly reduced risk, banks need to pay investors the interest rate is much lower than corporate rates paid to banks, the banks in a very small risk of the interest rate spread and win a lot of money; 3) to increase liquidity: Thus the accumulation of bank funds to solve the problem on the bad debts, with the new capital investment and better investment, which is today's urgent problems China's banking sector.
freelance writer Wang temporary closure of the first fruit MQA
4 years in the MQA, I understand a truth that must learn the strengths of others in order to better development. Barry has nearly 30 years a Wall Street veteran, has managed billions of dollars money, he, like many of the older generation, like traders, the mathematical analysis of the modern know little, but 30 years of experience gives him keen insight into the market, with grace under pressure in the general demeanor.
2002 6 months ago Our fund return was 13%, when the index before the market fell 15% in 6 months time, we decided to see profit-taking, but did not wait for our actions, the market starting from early July despite drastic changes, a few after that months, the index change of 1% per day over the first half of the day has more than doubled. from mid-July, said the largest U.S. mutual fund Fidelity sold nearly 300 billion in stock, so the way the stock market slumped, our funds was down 5% from its peak, this is our biggest month fund loss in history. As we are market neutral investment funds, 5% of our risk control far more than the warning line and our expectations, the company immediately in an atmosphere of repression emergence, Barry shows their general demeanor at this time, more decisively to prevent the proposed liquidated damages. This decision turned out to be correct, the risk control for our clients highly praised.
MQA hedge funds from 2000 to 2002 of return was 31% compared with the stock market index return of -40.3% cumulative, the amount of our funds of funds also increased to one hundred and fifty million U.S. dollars. but this time we also found that due to weakness in the stock market for three consecutive years, many investors away from stocks, in particular, individual investors are disheartened. market professional investment professionals only, and divide PCT will fight, getting lower and lower profit margins. If we continue to invest, it would allow customer's funds to take unnecessary risks. Edward and Nicholson in March 2003 decided to temporarily close MQA hedge funds.
Chinese saying goes: closed funds, this
fought NovaStar
happen at this time, a friend from Taiwan where he lava Star Financial Corporation (NovaStarFinancialCo.) is preparing to start a hedge fund, and has been preparing the first issue of the company collateralized mortgage obligations (CollateralDebtObligation), senior financial personnel needed.
headquartered in Kansas City Star lava financial company was founded in 1996, a NYSE listed company in 1997, the company's main business is home loans.
the job very attractive to me, so in the end of April, I rushed rushed to Kansas from Connecticut to officially as senior financial analyst to join this new creation of hedge funds.
in the bond market, mortgage market after the government bond market issuance. the last five years, a new generation of financial instruments that guarantee mortgage debt (...
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