There is no doubt that trading financial markets has always been about the numbers. This is increasingly so nowadays, where machine learning and artificial intelligence are the buzzwords du jour. This trend has seen ‘Quantitative Analysts,’ nicknamed ‘quants,’ thrive on Wall St and command exorbitant incomes. This may give you the impression that you need a PhD in Mathematics or Computer Science to succeed in the fast-paced, cut-throat world of quantitative finance. While such qualifications certainly wouldn’t hurt, they are not a requirement to succeed as a quant.
Toby Carrodus works as a quant focused on medium-frequency systematic global macro trading, spanning a variety of asset classes, including bonds, commodities, stocks and currencies. He has had a global career, having worked in London, Frankfurt, Los Angeles and Sydney for some of the largest and most elite money managers in the world, including PIMCO and Winton. He became a multi-millionaire in his early 30s from trading and investments.
Toby Carrodus is a clear example that it is possible to do well as a quant without a PhD. Although he cautions that you need a healthy knowledge of linear algebra, statistics, programming and market nuances to work as a quant, Carrodus highlights that many successful quants are often self-taught. Many attained nothing more than a Bachelor’s Degree, sometimes even in Liberal Arts. The most famous example, he says, is none other than Ross Garon, the former head of Steven Cohen’s booming systematic trading unit, Cubist, and now the head of Quant at the global juggernaut Millennium Partners.
One of the reasons why someone without a PhD can still rise to the top in quant trading, according to Carrodus, is that some of the key traits needed to truly succeed in this field are neither math nor coding. Rather, it is your creativity, interpersonal skills and grit that will truly set you apart as a quant.
Creativity Counts in Quantitative Analysis Argues Toby Carrodus
Most quants apply known methods and techniques from textbooks and journal articles, predominantly from STEM disciplines, to process financial market data. Many of these techniques have been well-established in academia for quite some time, even as far back as the 1980s. When interviewing prospective quants, Toby Carrodus often finds it quite surprising how unimaginative, uninspiring and common many of their ideas and methods are. From Carrodus’ experience, one thing that really makes a quant stand out in this context is their creativity.
“Your ability to link concepts together in ways that others cannot is key to establishing innovative, uncrowded trading signals,” says Toby Carrodus. “Being creative requires you to have a thorough understanding not only of the limitations of the models you’re using but also where there is scope to be flexible in terms of relaxing certain model assumptions.”
Toby Carrodus has noticed that far too many quants waste time focusing on the unrealistic, “perfect” world provided by theories. Such theories tend to stumble in the messy real-world of finance, which is dominated by the erratic nature of human behavior en masse.
“The best quants realize the limitations of such theories and apply what is useful to real-world applications, as opposed to trying to shoehorn reality into a neat theoretical model,” he says. With a grin, Carrodus quips that “in theory, theory and practice are the same. In practice, they are not.”
Interpersonal Skills Make a Quant Stand Out
All else equal, one of the noteworthy traits Toby Carrodus has observed in the most successful quants is interpersonal skills. There are many aspects to this.
First, Carrodus points out that quants mostly tend to be nerds not renowned for their social or communication skills. Within almost all organizations, generally the higher up the chain you move the more money you make. “However, the higher up the chain you move, the more removed you become from direct number crunching,” explains Carrodus. He adds that the more quants acquire seniority, the more their jobs revolve around managing teams of people.
Even temporarily putting this tendency aside and focusing on within-team dynamics, Carrodus argues that “your ability to interact with others, thoughtfully disagree with them and persuasively put forth ideas will determine how much impact you make at the organization you work at, and any organization worth your time ought to compensate you in proportion to your impact.” With a chuckle, he caveats “assuming of course that your impact is positive.”
Second, Toby Carrodus rightly points out that trading large sums of money often involves high pressure and dealing with stressful situations, especially when things go wrong. “If you have good relationships with your co-workers, you can work more effectively as a unit and focus on addressing the task at hand as opposed to bickering with one another when tensions flare up,” says Carrodus. “To manage any scalable quantitative trading endeavor, relationships and focusing on the people are key.”
Toby Carrodus believes that having good relationships with your colleagues is important on many fronts. Carrodus highlights that you spend more time at work than you do with your spouse or children. “This life is not a dress-rehearsal, so it’s important to make sure you enjoy your time at work and the company of those around you,” he says. “You will bring your best to the table if you have good working relationships.”
But there are other benefits. “We’re all people sharing this planet, and the more people you get along with and have good relationships with, quite simply the more opportunities and better odds of success you have,” states Carrodus.
Excitedly, Toby Carrodus says that some of the most life-changing, incredible opportunities have come to him from his network, and if he hadn’t met some person for a random coffee many years ago, he would not be sitting where he is today. “I am so thankful for the people in my life and the opportunities I have been able to seize along the way with my hitherto career,” exclaims Carrodus.
Successful Quant Trading Takes Grit More Than it Does Pedigree
Toby Carrodus lays it straight. Research can be disheartening. The odds of finding a successful new trading signal are low. Most signals fail. If quant trading was easy, we would all be rich. It is easy to get discouraged or even disillusioned in this game of what can seem like constant failures. Most research results are negative yet require so much effort. “This requires tremendous tenacity and self-belief,” he says.
In blunt fashion, Toby Carrodus illuminates the difficulties of life as a quant: “I’ve seen many gifted quants garnished with PhDs from prestigious universities lose faith in their abilities due to an inability to handle the constant rejection associated with speculative research.” Carrodus laments seeing colleagues with brilliant minds not succeed because of a genuine lack of resilience and emotional stability, not to mention an inability to effectively get along with others.
Toby Carrodus recalls witnessing several quants with immense talent, ripe with potential, succumb to severe bouts of depression and self-implode due to the nature of the business. He aptly states that “successful quant trading takes intestinal fortitude and tenacity more than it does pedigree.”
Grit is something that is hard to teach, but Carrodus has noticed that quants with more stable home lives and hobbies outside of work appear to have the most tenacity, perhaps due to having an ‘outlet’ or ability to ‘switch off’ – rather than carrying their problems everywhere with them.
Succeeding as a Quant
Success comes in many forms to quants. Being a successful quant may not necessarily mean earning the most money, although undoubtedly that is going to be a consideration for anyone with a quantitative skillset entering the world of trading.
Many quants lack commercial acumen. Hedge funds know this. According to Carrodus, hedge funds generally like to hire quants straight out of university PhD programs, as they’ve become accustomed to a low cost-of-living lifestyle and are, well, cheap. In fact, he even cites one example of a well-known hedge fund that routinely pays its sales team significantly more than its research team for this reason.
For many quants, earning more might not actually be a priority. If it is, however, Toby Carrodus believes that focusing on the innately human aspects of quant research, such as creativity, interpersonal skills and grit, might just be the key to improving your earning potential. As to what the future holds, Carrodus is optimistic for quants with these traits. He wraps up our conversation by saying “while there is no getting around a strong background in math, stats and programming, with so much talk of artificial intelligence replacing jobs it should at least be of comfort that those areas that will really set you apart as a quant are precisely those that are the most difficult to teach computers.”