Quit my Finance Job, Learned to Code, Releasing my project: Investment 1 - Smarter Wealth Management
Four years into a pretty cushiony buy-side job and I was pretty dissatisfied with life. Decided to leave and bought a ruby on rails book and taught myself how to code. I've been working on a few side projects; this is the first serious one I'm releasing:
Link is here: Investment 1
I thought it was unfair that large funds could run risk parity strategies (my background) but normal investors could not. That's the idea behind Investment 1 - making an effective strategy available as a wealth management tool.
Also, if anybody is thinking about making the jump and learning to code, happy to talk about the experience. It's been a lot better than I thought it would be so far.
Checked out the project, it's pretty interesting. A couple questions: 1. As a financier-turned programmer, do you find that your side projects tend to generally focus on addressing things related to your former career/industry, or are they varied? 2. Have you branched out from the rails stack to others? How's your experience been with rails so far?
I'd love to be in your position after I finish my MSF and work for a few years - have fooled a lot with JS before (making HTML5 games) and have always loved the creative aspect of it....
I think the project ideas I come with have a lot to do with the work I've done in the past. Have a couple of non-finance ideas, but not as confident in my ability to execute on them yet.
Rails has been great. I looked at python/django but ended up going the rails route because it seems that more people use it, so it'll be easier to use if I need to recruit a team. Also, there are a lot more open source plugins available for rails than there are for django.
Why did you quit and not just work on this in your spare time?
And, imo, sounds just like another way for investors to lose out on fees when they could simply invest in 4 broad ETF's and re-balance every other week/month.
You could use ETFs, but a big part of risk-parity strategies is leverage and using futures to implement the strategy. Also, rebalancing weekly/monthly might be too late if things are moving fast and each time you buy/sell there are transaction costs that are higher for ETFs than futures.
Ok, so I have some questions based on my (albeit limited) understanding of risk parity:
1) isn't risk parity an inherently levered strategy (ie leveraging the fixed income piece to bring up the risk weighting?). If you use go unlevered, you'll drastically cap your equity exposure, tough to produce any real return 2) you mention re-balancing daily - how does this work in a risk parity framework? IE if you have sudden big losses, "typical" re-balancing means "oh sht, my bonds are down 3%, let's add here" versus "risk parity" of "oh sht, my bonds are now 25% more volatile than I thought, we need to CUT risk since my risk weightings are now out of whack" 3) there are risk parity mutual funds that do this in an expert manner (AQR is the largest) - why wouldn't one just buy that? 4) are currencies usually part of risk parity? how do you have a "beta" /index to fx - isn't all you're really using in risk parity a bunch of betas?
Hey @Hedgehog - sorry for the late reply.
1) isn't risk parity an inherently levered strategy (ie leveraging the fixed income piece to bring up the risk weighting?). If you use go unlevered, you'll drastically cap your equity exposure, tough to produce any real return.
Risk-parity uses leverage to target a certain level of risk. The traditional way to gain access to risky assets, such as equities, is to overweight them, and therefore increasing the risk of the portfolio. So in an unleveled strategy, you simply overweight equities to increase returns. Our strategy doesn't target returns, however we do use leverage to gain access to risky assets such as equities. The 5% vol portfolio is typically unleveraged, but the 10 and 15 vol portfolios clearly are.
2) you mention re-balancing daily - how does this work in a risk parity framework? IE if you have sudden big losses, "typical" re-balancing means "oh sht, my bonds are down 3%, let's add here" versus "risk parity" of "oh sht, my bonds are now 25% more volatile than I thought, we need to CUT risk since my risk weightings are now out of whack".
We rebalance to maintain a constant risk profile in the aggregate (as well as to ensure an “equal” risk contribution of the four assets). The rebalancing decision is made with no regard to performance, but only taking into account risk. If an asset become more volatility (say equities in 4Q08), we would cut the risk.
3) there are risk parity mutual funds that do this in an expert manner (AQR is the largest) - why wouldn't one just buy that?
You could invest in AQR, however, you either have to invest through a financial advisor (.95% fees plus the fees your advisor charges), or meet their minimums of $100K and 1.25% fees. Our goal is to bring these strategies to everyone, and our CIO is highly recognized for his work in risk-parity, we believe our model is managed by a highly expert team as well. There are a couple of differentiating factors in our portfolio such as the ability to employ commodity and fx carry strategies.
4) are currencies usually part of risk parity? how do you have a "beta" /index to fx - isn't all you're really using in risk parity a bunch of betas?
The reason for adding FX to our portfolio is to take advantage of the low correlation between FX and the other three asset classes. For a dollar investor, the Beta for FX would be the dollar, though you are right that the concept of the Beta in FX doesn't really exist.
This is pretty cool, thanks for sharing!
How long did it take you learn Rails, and what book did you use? Also, did you bother learning any other languages before Rails (HTML/CSS, and specifically Ruby)?
Took about 3 weeks of full time reading to get used to rails. Used a book called "Agile Web Development with Rails 4" - written by DHH, one of the authors of the library.
Had a bit of experience with HTML and CSS from high school so that made it a bit easier.
Took me a bit to wrap my head around Ruby, but understanding the basics really helped me pick up rails faster.
interesting choice, have seen plenty of these services that are more short term in nature (master the gap) or based on MPT (wealthfront), but never on risk parity. I'm intrigued.
do you operate as an RIA and actually invest people's money, a 40 act fund/hedge fund, or is it a subscription service where you simply give them the ideas?
do you use ETFs or something else?
what time period for the Sharpe Ratio do you use and why? I'm always wary of people who cherry pick (not saying you do) time periods that don't include the crisis, because the volatility numbers are dramatically skewed.
kudos & SB for you on branching out!
So, are you William, Heiko, or Julissa? Your story doesn't seem to match up with the three people listed on the site. Or, are you someone not listed there?
Not listed yet. William is a pseudonym.
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Did you build the iOS app yourself too? It seems you're a very fast learner to build this application in 3 weeks (impressive to say the least).
Hi would it be ok to contact you about your experiences? Very interested in your work as well. May I email you? Not sure how connecting with you works. Please advise. Thanks so much.
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