Quantitative Analysis with Pete Millington

george grombacher 0:00
Come on let’s go. This is George G. And the time is right welcome today’s guests during a powerful Pete Millington, Pete, are you ready to do this?

Unknown Speaker 0:18
I am George. All right. Let’s

george grombacher 0:19
go. Pete is a CFA He is the founder and chief technology officer of scientific Financial Systems, Inc, their organization, working to advance the state of the art of data science, big data, machine learning and asset management. Pete tell us a little about your personal lives more about your work and why you do what you do.

Unknown Speaker 0:39
Thank you grew up in Texas, studied engineering, did undergrad down in Texas and came up here to the Boston area to study aerospace engineering, actually, at the time and after I graduated and went into the defense industry for for a few years. But I was actually doing some work in in neural networks and AI at the time, and just started reading more and more about what was going on in finance, particularly the application of AI and that to the finance in the late 80s and early 90s. And it was very fascinating to me. So I ended up kind of doing a career change moved into finance in the mid 90s. So I was hired over at Fidelity Investments as what we call a quant, which, you know, we apply kind of algorithms and statistics and you know, data analysis to the markets, there’s a great kind of career move, I’ve really enjoyed that I was there for 17 years, doing kind of that that sort of application kind of started as an analyst kind of went into fund manager. So I ran various strategies using quantitative techniques, and became a director of research. So I managed a group of people that were doing this managing kind of, you know, multiple, multiple billions of dollars, ran a hedge fund for a few years kind of started this firm, scientific financial systems about four years ago, to bring these techniques to the broader industry, as I felt like a lot of these people do things in house, but but it’s very time consuming to do that. So I wanted to kind of make a contribution to the industry as a whole, based on my experiences and bringing these capabilities and making them easier to embrace and let people focus more on creativity aspect of running money.

george grombacher 2:24
Excellent. So bringing these technologies to the broader industry, let them focus on the creative parts. So what what are these techniques and capabilities.

Unknown Speaker 2:35
So generally speaking, you know, there’s a lot of data, and it’s, it’s very time consuming to bring the data together and to sort of apply some analysis and, you know, that’s, unfortunately takes a lot of the time, whereas really, people need to be focusing on developing the algorithms, exploring the data, understanding and hypothesizing about how the markets work. And also thinking about and learning from what the markets are doing. So, you know, it’s really a balance, but at the same time, you know, the the implementation, the technology can kind of take on a life of its own. But so ultimately, you need to find time to, to interact with the markets, and to think about what’s driving the markets. So, so really, it’s about like applying data science techniques, applying machine learning techniques, but in a creative way, where you’re bringing your ideas to bear. And the ideas are coming from, you know, your intimate interaction with the markets as a fund manager living in date, you know, breathing that on daily basis, the ups and downs, and thinking about why is my fund going up today or down today? And, you know, is there something I missed? And if there’s something I missed? How do I capture that? How do I explore with the data to capture and understand the markets better and continually expand kind of your, your, your mental model of how the markets work?

george grombacher 3:48
That’s fascinating. So how many, like when you’re saying this sort of makes sense, but how many data points are we talking about? Is that even the right question? What?

Unknown Speaker 4:03
It’s one of those things that, you know, as information exploded over the last, you know, 1520 years, you know, it’s just become such so overwhelming. And one of the trends actually, is that quantitative investing has become a very dominant force in the industry. And it makes sense because it’s very, very difficult for humans qualitatively, to, you know, consume all that information, and react quickly, right. So people have embraced, you know, machine algorithms and that sort of thing to to assist. And it’s almost as if, you know, the firm’s that don’t do that, you know, are it’s hard to compete nowadays. So, that’s kind of the evolution of it, but with respect to you know, how much data it’s there’s so much data out there, you know, traditionally it was kind of getting the filings that companies are required public companies are required to kind of publish their, you know, annual and quarterly returns, you know, by, you know, regulation. and across the globe and you collect that, you know, get the pricing data from the exchanges, you see what the Wall Street analysts are doing. But now there’s so many other data sources out there, what we call alternative data, consumer data, like consumer credit card data, which, you know, provides a lot of insights as to what’s going on what are what are consumers doing, give you a heads up used to be, you’d have to wait to the end of the month, you get a government report to say, you know, what’s happening with, you know, oil inventories, or whatever it is, but nowadays, there’s so much information, you can actually get it almost real time, you know, are, you know, people starting to pare back their spending, and what does that mean, for certain stocks, you can actually get it, you know, even intraday, sometimes, and, you know, that’s where a lot of a lot of firms have embraced that, you know, to actually give them a leg up. And so, you know, it used to be, you’d have to wait for data now you can go out and, like, get a lot of data. But, you know, with respect to how much data, there’s huge amounts of data, petabytes, and petabytes of data nowadays, and people are using these techniques that actually can can process and, you know, these huge amounts of data. So it’s very exciting, all the things that are happening. It’s an escalation, you know, technology at the end of the day,

george grombacher 6:04
yeah. petabyte people, do people really know what that is.

Unknown Speaker 6:10
Yeah. So it’s, it’s, you know, it’s, what is it 1000, you know, billion bytes. So it’s, you know, it’s, and that’s becoming a lot more commonplace. It used to be, you know, a few decades ago, that was just a crazy thing. But that’s becoming so common nowadays. And, you know, but firms are investing in a big way in their data, that data infrastructures, and they pay, you know, the, their their talent a lot, you know, to cultivate these skills, you know, so there’s a huge amount of money being invested, actually,

george grombacher 6:41
no, it makes no sense in the world. So I’m trying to try to understand, so if I’m a financial firm, and then I’m running a mutual fund, and so we’re trying to make good decisions, so that we can get great returns for our clients so that more people invest, I can work with your company. And essentially, if I said, Okay, here’s the info, I really want to be tracking, and you can maybe give me like a dashboard that I can look at,

Unknown Speaker 7:11
exactly, or, you know, what we also do is we provide the tools to the, to our customers, right, so they can be creative, but we take away all the kind of time consuming, you know, operational stuff, bringing the data together, merging the data, cleaning the data, you know, production, analyzing all of that, that is just kind of distractions away from, let’s actually build a strategy, right. So what we what we do is actually provide tools to help people streamline and work more efficiently, so that they can focus their energy on actually implementing, experimenting, you know, you know, and kind of exploring the data, you know, so really, they are our customers, they still take an active role in, in designing and learning and implementing, we just give them the tools to do it more efficiently and more quickly. But at the end of the day, we’re not doing it for them, you know, we’re helping them to, to focus on where they can add value, and not on all the distracting things that come along with, you know, the operational aspects of actually getting all the machinery to work.

george grombacher 8:18
Yeah, yeah, I think that that makes it makes a ton of sense. Or do you think that we’re gonna get to a point where it will, like, just just whatever the term is, where a robot can just be just do it better than a human being interacting with a robot?

Unknown Speaker 8:41
Yeah, it’s kind of going to evolve. And I think it’s probably going to involve in a way that it’s not kind of, you know, human and machine and, you know, eventually, you know, the machines takeover, it’s going to be kind of this melding, and, you know, augmented, you know, intelligence are such that, you know, the, the firms and the individuals that kind of embrace that, you know, ability to become more competitive through these techniques are going into Excel or, you know, dominate, you know, their, their businesses. And so I think it’s going to happen in a way that’s not kind of the way people originally think of, you know, a man machine kind of coming, you know, competing head to head and somebody’s going to come out the winner, it’s going to, we’re going to become more melded together with respect to, you know, information, helping you make better decisions, and then AI helping you to make better decisions. And at some point, you know, where do we fit into, you know, the thought process, and it’s going to become very nebulous, but yes, I do think that it’s already happened. And I think the financial industry has always been an industry that has been on the cutting edge of the application of technology just because there’s so much opportunity and being kind of in the fourth front. And so so there’s always been, I think, early adoption of new technologies in finance. And one of the challenges there, one of the interesting points about the financial industry is that people are very secretive. Because whatever they’re doing, they don’t want to share with their competitors. And they, you know, don’t say it publicly. So it’s, it’s not always easy to even know where the state of the art is in the financial industry, because there’s so much secrecy around what you’re doing what people are doing, but I do believe, you know, there’s actually a, you know, very extensive use of AI and machine learning nowadays and investing.

george grombacher 10:38
How do you feel about surprises? Peter? How, how often are you surprised?

Unknown Speaker 10:44
In general?

george grombacher 10:45
Yes. And then with your work?

Unknown Speaker 10:49
It’s an interesting question. It happens, right. And I think, as a, as an entrepreneur, and, you know, I tried to cultivate, you know, my creative side. But at the same time, you, you know, if you take on something that’s challenging, you need to stay focused, and, you know, so finding that balance of actually being, you know, having some sort of determinism to work through things, but to keep an open mind about maybe the way you’re going about it is not necessarily the best or the only way, right and finding that balance, because at some point, you can’t just think you have to do, but you don’t want to do kind of exclusively with tunnel vision. So, you know, I think, you know, sometimes we think about, well, what is the industry doing? And, you know, are there other, you know, individuals out there we can learn from? And, and, you know, if you do that too much, you don’t actually need to move your agenda forward. But if you do have to stop sometimes, so yeah, I think sometimes I have a conversation with someone, and they’re like, Oh, I didn’t think about you know, that way. So I think it’s keeping an open mind making time to actually speak and learn. And, you know, yes, you’re surprised sometimes it’s like, I didn’t know this, you know, this capability was already that far developer didn’t know, this habitual was doing this. And, you know, so, you know, I think making time to learn and, you know, read and, and speak with, you know, people to learn from them, I think is, and I do get surprised, you know, and it is a function of how much time I make for that, you know, so great question. So,

george grombacher 12:32
yeah, in terms of how much time you make for things, how do you think about prioritization?

Unknown Speaker 12:40
Yeah, I think it’s a, at the end of the day, you have to, you have to kind of have a sense of what you’re trying to accomplish, and what’s going to be involved and you know, how much time it’s going to take and make sure that what you’re doing is actually going to be worth the effort, right. And that’s not always that clear. So you have to think through things. And just try to make sure that you’re finding the best way to be creative, be yourself, right, bring kind of your skills to the table. But keep an open mind. Right. So I think it’s, it’s, it’s not an easy thing to do, you know, so for example, I, I don’t always, I’m not always on my phone, you know, on the internet, you know, I try to make time to think through some of the things that I’m what I’m doing. Because ultimately, I think the creative end of things is very important. And I think sometimes that’s lost when there’s so many distractions going on. There’s so much today, that’s barraging you on a daily basis. And so you have to make time to stay focused, you know, if you can,

george grombacher 13:58
in terms of like I, I am a major proponent of doing what you’ve just described, and my I probably, I have like a fraction of a petabyte worth of processing power in my brain. So I need to be very judicious with what information I’m letting in and what I’m thinking about, because I just I only have so much. And so that’s a challenge for I think all human beings right now, and for your systems. And for a financial firm. How do I know whether I need to now be taken into consideration what’s happening in Ukraine and how that’s going to impact Germany and everything else? Is that how are you thinking about that?

Unknown Speaker 14:49
Yeah, I think there’s traditional ways to go about it. But I think at the end of the day, the way different dynamics affect the markets It’s not always clear the supply chain, you know, which linked through in ways that aren’t immediately obvious. You know, I think sometimes in the markets, we use some techniques, for example, principal components, which basically show you which influences are affecting what stocks and you know, you can kind of see patterns as to how a certain event is affecting certain, you know, aspects of the market, and how you can capitalize on that learn from it, it’s like, why is the Ukraine event affecting these industries in this way, right. At the end of the day, you know, it’s a balancing act between letting the data show you where and how things are being affected, but also making sure you have a theory or, or a thesis as to how that makes sense to you, and that you’d be willing to invest a certain way. So, you know, I think you have to go beyond just, you know, the classical approaches about, you know, countries and regions, and, you know, because now the industries are interconnected. So, so there are techniques out there, I guess, to say that, you can learn how these linkages, you know, affect themselves, and there are, there are kind of, there are kind of what we call factors that play out, that you can exploit and capitalize on that are not immediately obvious and will show up in the data, they aren’t they do relate back to, you know, geopolitical events, right, but not always in the way that you might have traditionally thought, right. So because we’re the opportunity sometimes are the more subtle things, right, the obvious kind of traditional things, you know, have, you know, haven’t will be, you know, exploited, and the opportunities are mitigated in larger cases, but it’s where the more subtle, like secondary and tertiary effects of those things. So, you know, so there, they there is the way that plays out. But there also is a way that, you know, these techniques kind of look at the data and learn ways to capitalize on those sort of things that are not yet the traditional way.

george grombacher 17:16
Fascinating, that’s why there’s quantitative and qualitative. That’s right.

Unknown Speaker 17:20
That’s right. It’s an interesting, yeah. And so which actually is one of the interesting areas that, you know, that I’ve enjoyed working within is, you know, their traditional fundamental approach to investing and the newer, you know, technical, quantitative approach, and actually finding a way to bring those together, you know, because ultimately, both sides can learn, and when they interact, you know, you can actually come up with something that’s more creative. And that’s not easy to do that it’s not easy for him to have had the capabilities in both sides. But that’s right. But there will be kind of a way to actually bring those together into a better comprehensive view.

george grombacher 18:02
Yeah, yeah, I think it’s, I think it’s super interesting. And I’m also super grateful that there are folks like you, Pete, who actually understand and can marshal all of this information and, and present it to people and make it, show them how to potentially make it usable what they do with it, I guess that that is out of your hands. But

Unknown Speaker 18:24
one of the things, one of the reasons why I ended up going this direction, career wise was, you know, I thought about, like in academia, when you do a PhD thesis, or something like that, very intricate, where you become an expert on a particular space, and sometimes you’re looking for a problem to showcase, you know, your idea. And sometimes the showcase you’re choosing is not that applicable to many different, you know, you know, use cases are people’s kind of lives. And so, you know, a lot of times you have these people making great contributions, but on a problem that is very kind of limited in scope, right, but in the financial domain, if you can be creative, right, and you can work with all these really interesting techniques, and you know, enjoy the creative process, solve a problem that people ultimately will care about, right? If you can do something that is, is impactful, and creative and the financial markets, it that is a solution that people are interested in. So that’s one of the reasons why I ended up kind of going down this path of the application of technology to the financial markets, because it actually is a it’s a problem that’s challenging. And it’s really intellectually enjoyable to work with just the talent, the you know, the people that are in that space, but if you can bring something to bear, there’s so much interest and applicability to actually run with that, right. So that’s it sleeping really enjoyable as far as a career path goes,

george grombacher 20:03
I love it, that makes a ton of sense. People are ready for that difference making tip do you have for

Unknown Speaker 20:09
them? Well, a couple of things. So one is, you know, as an entrepreneur, I’ve really enjoyed this path, it’s, you know, it’s not always easy, but it’s, it’s very rewarding. So, you know, I would encourage people as they go through their lives, and you know, I’m in my 50s now, so keep an open mind and look for opportunities to be yourself and find ways to, to leverage who you are and what you bring, you know, to, to the world. I think that’s one area, you know, with respect to actually investing itself, you know, we actually apply these advanced techniques, you know, if there are people out there that have an interest in that, from a career perspective, are actually doing it themselves. If you’re technically, you know, inclined, you can actually do a lot of these techniques yourself, there’s a lot of datasets out there that are readily available. But there’s also a lot of financial products out there that leverage what we do. And I would recommend that people, you know, make that part of their portfolio to have some exposure and in their individual investing to these techniques. You know, some examples might be, you know, there’s a technique that came out, you know, fairly recently, it was something called fundamental indexing where you know, you’re running money, and you’re doing it systematically, but you’re actually using fundamental concepts, which is a lot of kind of the some of the things that I’ve done as well. So there are financial products out there like that I would encourage people to look look into and make it part of their investment portfolio.

george grombacher 21:38
Well, I think that that is great stuff that definitely it’s calm. Pete, thank you so much for coming on. Where can people learn more about you? How can they engage with you?

Unknown Speaker 21:46
Thanks, George. I appreciate the opportunity to speak today. So our firm’s scientific financial systems, our website is siphoned sis.com. There’s a lot of information there that talks about the product and our team, what we’re doing in the space, we’re happy to speak to anybody that might be interested in looking at our products. We’re learning about what we do. Very excited to have a chance to share that with you today. So thank you so much for your time.

george grombacher 22:09
Yeah, it was a pleasure. If you enjoyed as much as I did show Pete your appreciation and share today’s show with a friend who also appreciates good ideas. Check out what he’s working on it. sigh fin sis.com. Is that a CI FIM sys pate? That’s

Unknown Speaker 22:23
right. Excellent. Perfect.

george grombacher 22:25
And until next time, keep fighting the good fight. We’re all in this together.

Transcribed by https://otter.ai