Friday, December 02, 2011

From Walden Pond to quant trading

True story. Theoretical physicist saves enough money during 5 years of postdoc to retire -- living entirely from investment income at $7k per year of expenditures (budget).

I simply saved more than three quarters of my income for five years. The math works out. If you save 83% and spend 17%, you need 25*0.17/0.83 ~ 5 years of savings, where 25 is the inverse of 4%, which is a safe withdrawal rate for at least 30 years.

While enjoying frugal living and retirement in his mid-30's, this former physicist starts a widely followed blog and authors a book: Early Retirement Extreme (ERE).

How does this story end? With the hero living a quiet Walden-esque life of contemplation and home cooked meals? No, of course after a few years he un-retires to join a fund as a quant trader/researcher!

What I like to do is solving impossible problems. Or just “hard problems”—problems that people don’t want to wrestle with. I did this in physics and learned a lot. I realized that I wouldn’t learn very much from solving a similar problem in physics and that’s why I quit physics. The challenge would not have been the same. Fortunately, I realized this quickly and I had the money to quit or “retire from my career“.

ERE is another one such “hard” problem solved (it’s only hard, because it’s somewhat out-of-the-box and thus more a question of shifting your perspective than it being any kind of technical challenge). I’ve written enough material here on the blog and in the book to show you how it’s done. I have the same problem with ERE. The challenge is gone for me. Many others are currently on the road towards financial independence and this is exciting for them but for me it’s just vicarious living. Becoming financially independent, the subject of this blog, is a period of transition and obviously one can only transition once. This is why fresh blood is needed.

[Uhh, part of the challenge is maintaining the minimalist lifestyle, well, for the rest of your life...]

... So what am I going to do now? Well, yesterday I got a job offer as a quant trader/researcher. I took it! I think this fulfills all my criteria. It’s a hard problem, it requires no marketing, no politics, no self-promotion, and no management. As far as I can tell, I’m safe from the Peter principle and can focus on research and development without worrying about suddenly finding myself having to sell or manage my stuff.

When I told this story to my wife she thought perhaps the job offer came from a rich former colleague in physics, who did it just to test him (i.e., f#ck with him) and throw a monkey wrench into the ERE equilibrium! ("Ha ha, Buddha came down from the mountain for chump change!") I won't be surprised if in 10 years this guy is complaining that his second home in the Hamptons is too small ;-)


reo durbani said...

Story is similar to the one told in a new Guardian blog about the people behind the financial industry; this week it featured a story about a former theoretical physicist who gave up CERN to become a quant in the City: 

David Versace said...

"It’s a hard problem, it requires no marketing, no politics, no self-promotion, and no management."

Here's some advice from someone that has been an IB quant, if only briefly.  Everything in that sentence is either outright false or a criminal half truth.

Steven Sheets said...

Jacob and I were postdocs at the same time and his office was down the hall from mine. No one really knew him at all afaik since he didn't interact much with his colleagues. He didn't tell anyone about his ERE stuff or about quitting his job to live a minimalist lifestyle. Since I live a very frugal lifestyle (not quite as extreme) and have a similar interest in finance and investing it was somewhat a shame we didn't talk much.

"[Uhh, part of the challenge is maintaining the minimalist lifestyle, well, for the rest of your life...]"

Agreed. ERE as he practiced it is really for the selected few. Most people have to factor in future medical costs, caring for parents and children, and poor stock market returns. 

Carson Chow said...

I just want to know how he's getting 8%.

Guy_Brodude said...

This is a very interesting post. It's also worth noting that advanced civilizations have sprung up in areas (e.g. the Middle East, South America) that modern HBD devotees generally regard as inferior. While I find the speculations of Lynn, Rushton and co. very interesting, they should be regarded as just that, speculations. Nobody really knows why civilizations develop or why particular areas produce such a disproportionate number of great minds. Consider the example of Europe alone: within this continent IQ generally decreases with latitude, and yet most of the great civilizations were located in the far south. Hungary alone has probably contributed more to science and mathematics than all of Scandinavia put together, which is the opposite of what HBD would suggest (I know a lot of those individual contributors were Jews, but I think it's still a fair point).

The course of human history, in my opinion, cannot be reduced to weather patterns, soil quality, or mean IQ. To fully understand it is a respectable, but in my view impossible, goal. As another commenter here said, Gould has unfortunately spawned an equally rabid, equally shallow legion of anti-Goulds whose opinions should be taken with a huge tablespoon's worth of salt.

Ken Condon said...

What a pleasant post Moshan. Yan Shen was the name you were seeking I do believe. Your writing style is very enjoyable-even sunny. I was wondering where the Sephardim fit in on your scale? They seem to get short shrift to the Ashkenazi’s. A comparison DNA study of the two would be most interesting. 

Perhaps NE Asians are indeed too meek. Those in Asia in mean. Their personalities seem to change quickly after one or two generations in the West so perhaps that meekness is mostly cultural. The nail that sticks up being pounded down and all.

But weren’t you aware that the Scot’s invented the modern world ;-) Forget the Asians and Jews

JLOV said...

(I know a lot of those individual contributors were Jews, but I think it's still a fair point)

No, it's not a fair point precisely for that reason. 

David_Merkel said...

Or maybe, just maybe, he found retirement more boring than working. Complex problems in the markets have no solutions, because the market is always adapting to the mix of strategies applied.  He will probably have a lot of fun, which is a good reason to change.

Ju Hyung Ahn said...

Quite Frankly, I'm vexed by your audacity to go on writing such a lengthy, yet misleading post.  Since not correcting your errors will confuse even more people, I'm compelled to comment.
Granting that much of the advancement in sciences came from Europeans/Jews from 18th century and on, you couldn't be more wrong about assuming the rest of the world being backwater when it was Europeans themselves who were lagging behind prior to those periods.  Many of the "European" discoveries in mathematics were anticipated by Chinese or Indians of many centuries prior.  I will just list points mentioned in an article from the ART of PROBLEM SOLVING; Volume 2: and BEYOND written by Richard Rusczyk and Sandor Lehoczky.

1.  Gaussian elimination was used in the Chinese Nine Chapters on the Mathematical Art, written around 200 B.C.  Chinese used notations were very similar to what's used today.  Since Gauss lived around 1800, Chinese were actually 2 millenniums ahead.

Refer to

2.  Pascal's Triangle was first developed in China.  According to below, Chinese were ahead again by 400 years.

From Wikipedia (
In 13th century, Yang Hui (1238–1298) presented the arithmetic triangle that is the same as Pascal's triangle. Pascal's triangle is called Yang Hui's triangle in China.[6] The "Yang Hui's triangle" was known in China in the early 11th century by the Chinese mathematician Jia Xian (1010-1070).

3. Horner method was already known in China.  Chinese ahead by at least 500 years.

From Wikipedia (
Even though the algorithm is named after William George Horner, who described it in 1819, the method was already known to Isaac Newton in 1669, the Chinese mathematician Qin Jiushao in his Mathematical Treatise in Nine Sections in the 13th century, and even earlier to the 11th century Song dynasty mathematician Jia Xian, and the Persian Muslim mathematician Sharaf al-Dīn al-Tūsī in the 12th century.[6] The earliest use of Horner's scheme was in The Nine Chapters on the Mathematical Art, a Chinese work of the Han Dynasty (202 BC – 220 AD) edited by Liu Hui (fl. 3rd century).[7]

4. Brahmagupta's Formula and Chinese Remainder Theorem

These are but few examples, much of the mathematical discoveries made by Europeans were already known to Chinese, Indians, or Mayans.  The only reason why we use European nomenclature for these is due to lack of cultural exchanges between them; you shouldn't confuse it as European ingenuity, even though the discoverers of these methods were indeed ingenious.  Even though what Greeks did was great, even that was influenced by Egyptians and later refined by Arabs and Persians.  This is where the term "Algebra" comes from.  Even the Koreans invented world's first metal movable type in the 1200s preceding Gutenberg's by 2 centuries, and Gutenberg's metal movable is considered by Europeans as one of the greatest inventions because it revolutionized printing industry.  The past of the Europeans aren't all that glorious as you may suppose barring their rise to power circa 18th century, scientific progress has been in virtual halt between Roman era to the Renaissance.  They were threatened by Ottomans and Mongols, and it wasn't until 19th century Europeans were able to challenge the mighty Qing dynasty.

Ju Hyung Ahn said...

Perhaps, that study was a consequence of having mostly Jewish subjects those are comparatively high V and M than S.
I mean there are studies indicating Terence Tao is very high M and S compare to V (indicated by his high scores in SAT-M and ARPM compare to SAT-V at young age), yet he doesn't have trouble competing in the highest area of mathematics.

Yan Shen said...

"Could this also explain why Jews have had such a disproportionate amount of geniuses relative to their population?"

It's clear that their extraordinarily high V explains their predominance in the humanities and social sciences. The issue under discussion is whether or not extraordinarily high M and decent V is the cognitive profile of those succeeding in the mathematics and hard natural sciences. One would certainly infer this from a study of someone like Terence Tao.

Additional data point supporting the high M decent V hypothesis is that both East Asian Americans and Jewish Americans seem to be similarly over-represented relative to their population percentage on competitions such as the IMO or the Intel Science Talent Search.

Moshan said...

Hi Guy.

There's a very good I think you would enjoy reading, called 'Understanding Human History' by Charles Hart. It's available for a free download if you're a good enough googler.

Although I wouldn't equate Lynn as the opposite of Gould/Diamon, I think it is fair he is a bit emotionally/intellectually overinvested in the importance of genetics, even if I think that genetics is very important.

The way I see it, genes account for the potential. They are, if you allow, the ceiling of accomplishment. But aside from that, you have issues such as culture and to some extent vitality, even aggression that is needed. One modern example is North Korea. There's nothing wrong with their basic intelligence, but they've picked the wrong governmental system which to rule their nation. The result has been total stagnation.

Yet, many countries in Africa, like Botswana, have far better basic concepts of governance, but they still fail miserably in comparison to, say, South Korea.

I think this is also true for human history in general. IQ is the ceiling, but just having potential is not enough. Anyone with even the faintest of interest in sports would know that, as many young people have extraordinary amount of talent but fail for other, external reasons. Yet, to truly be world class you need a very large amount of talent to begin with, but it is seldom enough. I hope I am clear in my points.

How advanced South American empires truly were is not at all clear. They had art, but not a lot of scientific or truly groundbreaking advances. A measure of a civilization's importance is it's reach and influence. Nobody today quotes anything from any thinker from those times. Which doesn't mean that there is zero to be taught from them, but as a civilization, as a whole, their impact was miniscule and was ripped apart within a few short years by Europeans who numbered in the hundreds, facing tens of millions. Even diseases aside, Cortez took what today is Mexico City with just a few hundred soldiers, facing several hundreds of thousands.

As for the frantic response, as I stated, there are pointed inventions which China, but overall mathematical progress in China was very uneven and not at all as great as some people seem to suggest. One of the biggest myths is the supposed backwardness of medieval Europe. True, Ancient Greece was arguably the most productive period of any civilization before the advent of the 17th century and the oncoming hegemony of European civilization over the rest of the world which would continue for many centuries.

Still, some people claim the Islamic world was so advanced. Yet, as I mentioned, they failed time and time again to do anything but nibble at the edges. Once or twice they got a bit closer into Europe, like the battle of Vienna, but they always lost when it counted. There was no Arab/Persian equivalent of Alexander the Great, or for that matter, Genghis Khan.

The topic of the actual state of Medieval Europe is a long one, but Charles Hart, an Astrophysicist PhD with an acute curiosity of history and specifically scientific history, goes a long way. He is also a Jew, so one cannot exactly say he's biased towards Europeans considering the long history of persecution of the diaspora Jew.

He especially compares Europe and China and concedes that there were certain areas of scientific progress that China excelled, and with a rather large margin at times, but overall there was no such clear cut advantage save for the period following the immediate destruction of Rome, but even then there was scarce work of true genius of, say, Homer, Michaelangelo, da Vinci or many others.

If there would have been, we would be having this discussion in Mandarin, not English.

Antti Lauerma said...


What do you think of this overview of all (U.S.) money? 

Are the figures and facts right, in their contents?


steve hsu said...

Very cool! A lot of numbers to check, though ...

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