Successful quant stratégies tend to hit capacity limits...
Eg selling insurance can be seen as a zero sum game, but it's a genuinely useful product for people, even when the expected value for them is negative. It works, because utility is not strictly proportional to money.
Similarly, market making delivers liquidity-on-demand for a fee.
One of the genious thing that rentech did was long out of the money bonds, and short newly issued bonds. Seems like such a simple strat, but when you crank up the leverage you can make alot of money.
According to industry rumors, RenTech is somewhere between $10-20bn AUM (assets under management, i.e. the capital used for trading), and the profit that they make, they can't reinvest, they have to take it out as profit.
I know literally zero about this stuff!
It's easy to make a few high margin dollars, hard to make a lot of high margin dollars.
They also got into some tax trouble with uncle sam and had to pay 7b in back taxes (https://www.wsj.com/articles/james-simons-robert-mercer-othe...)
I guess the theoretical limit to how much money you could make in the market is "the sum of all volatility", but I wonder how realistically possible it would be to even dream of beating 62% yearly.
The returns of modern HFT market makers are even higher. With their unfair “business” advantages such as PFOF, privileged dark pool and block trade access, and military internet infrastructure.
Think 60%+, per year, at least. Over 10-20 years, of course.
