There's a famous theory that you've probably already heard about, and it involves monkeys and Shakespeare.
The idea behind the "infinite monkey theorem," depending on the variation, is that if you put a monkey in front of a typewriter and give it enough time -- or put a bunch of monkeys in front of a bunch of typewriters -- eventually the monkey(s) will bang out some Shakespeare. This is obviously a high bar and no one's yet been able to get a monkey to type out Shakespeare, as far as I know. (Maybe if the bar were set lower, say to get a monkey to bang out a witty, 500-word financial-news column? Wait, never mind. Let's move on.)
Anyway, this theory came to mind while reading a Wall Street Journal article about how Steve Cohen is investing in a hedge fund run by investment firm Quantopian, which provides money to amateur quants who come up with profitable computerized trading strategies. These aren't exactly monkeys, of course; they're obviously much smarter. (The article mentions mechanical engineers and nuclear scientists.) But the idea is similar: Give enough people the right tools, and eventually you'll get Shakespeare. Or in this case, something even better: market-beating trading algorithms.
Some 85,000 quant wannabes reportedly have signed up from 180 countries and created more than 400,000 algorithms trading U.S. stocks on the platform, and 10 have been selected to trade a few thousand dollars. Some other companies have similar systems.
It may be tempting to roll your eyes and dismiss the initiative as some sort of gimmick. That would be a mistake that ignores how much technology has democratized all manner of business models that previously had high barriers to entry. If you are a musician who wanted to make a record, you once were at the mercy of record labels or else had to scratch together a bunch of cash to pay for the recording and production. Now, cheap home-recording software and free sites like YouTube give anyone a shot at stardom. If you wanted to be a writer, you were at the mercy of book and magazine publishers or otherwise had to scratch together a bunch of cash to self-publish. Now, anyone can start a blog that will give them a shot at stardom.
And if you wanted to be the manager of a quant fund? Well, now it sounds as if Cohen and his crew are interested in knocking down those barriers to entry that stood in the way for a long time -- namely access to millions, or hundreds of millions of dollars, in capital. This will most likely inspire even more to storm the gates than the 85,000 that have already done so. Perhaps the only surprising part of this development is that it took this long to happen.
In the words of Shakespeare's Sir John Falstaff: “If money go before, all ways do lie open.”
Make room for the monkeys.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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