ReSolve Riffs with Investing Legend Roy Niederhoffer about Pushing the Boundaries of Quant
We had a very special guest this week – Roy Niederhoffer, founder and president of R. G. Niederhoffer Capital Management, a NY-based quantitative investment firm. With a strong musical background and an original plan to become a neuroscientist, Roy might have led an academic life if it weren’t for his programming skills and an offer to join his older brother’s hedge fund, one that he couldn’t refuse. He joined us for a fascinating conversation, covering topics such as:
- His early life, a diverse set of interests and becoming a highly skilled generalist
- Striking out on his own – why would an institution ever invest with a 26-year old running computer in his living room?
- Developing short-duration strategies that are uncorrelated to both traditional and alternative investments
- Long volatility vs short volatility strategies
- The inescapable dopamine rush of capital markets and the importance of managing emotions
- Trend-following, convexity, and why the frequency of observations matters so much
- Behavioral neuroscience applied to markets
- Leaning into the work of Danny Kahneman and dissecting his magnum opus over dozens of weekly sessions
- Identifying price patterns that will trigger predictable emotional responses from market participants – therein lies the edge
- The difference between strategy management and risk management
- Printing of fiat money and the conditions for an elimination event that can wipe out multi-generational wealth
He also summarized his general investment theory, which seeks to identify asset-class characteristics that can be generalized, those that will remain idiosyncratic, and some that might eventually spill over into other markets. Roy is a true polymath, with a unique perspective and a generous disposition to share his knowledge.