PhD Physics Student Seeking Quant Advice

[creepypasta13]

You should be able to transition over with an engineering degree, but you should really try to figure out what you actually want to do. You mentioned engineer vs quant vs actuary, all of which are completely different fields, with completely different career paths. So I would first figure out what you want to do, and then start thinking about grad schools.

how does one figure that out? by working in industry? i already got my BS degrees

 

[gatorphys]

how does one figure that out? by working in industry? i already got my BS degrees

Well, I guess that's the problem with choosing any career right? How do you know what you'll like or dislike before you actually work at the job? But you could start by thinking about what your interests are. Do you like engineering? Programming? Hard-core math? Analyzing risk and uncertainty (actuary)? Do you follow the markets? Keep up with the financial news? etc...

 

[twofish-quant]

Could you please elaborate a little on which kind of socially useful works can be done in finance and why you think they are useful?

It's something that you need to read yourself and make up your own mind with.

Elizabeth Warren, Simon Johnson, and Paul Krugman pretty much think that the type of work that I'm doing is useless and ought to be banned. There are also lots of things on the net that take the opposite position. Some of it is corporate propaganda, but one thing that makes thinking difficult, is that just because something is corporate propaganda, doesn't make it incorrect.

One thing that that does influence my thinking is that I'm not interested in social usefulness to make myself feel good, since if your goal is to make yourself feel not bad, then it's trivial to come up with arguments that make you feel good. The reason that I'm interested in whether what I'm doing is socially useful or not is that I'm interested in my own bottom line. My paycheck has to come from somewhere, and if it turns out that what I'm doing *isn't* generating real wealth, then I'm in the middle of a bubble, and I need to figure out how to get out ASAP.

 

[Locrian]

If you look back to the 1960's, there has always been this mythic shortage of scientists.

What really gets me upset is

*** But Education Secretary Arne Duncan says a surplus of STEM graduates is a problem he'd like to have. ***

I liked http://www.urban.org/UploadedPDF/411562_salzman_Science.pdf quite a lot. Apologies if I've posted it before, but it seemed relevant to your argument here.

 

[osmosis]

Twofish-quant's advice is excellent, and I'd like to add a few thoughts from the perspective of a trader-quant for what they are worth. There are many different roles for physicists in finance. In this sense, wall street is similar to academia. Your individual experience, career development, and pursuits are highly dependent on the specific group in which you work. Though there is mobility between firms, to a variable degree within a firm, and to a rapidly diminishing degree between niches, the initial step you take likely will determine the course of you career. So make it carefully.

There are several types of firms and roles for quants. Large firms such as the major investment banks are good starting points. They have the pluses and minuses of a postdoc at a top tier university. They look great on the resume and have many exciting areas to work in and high quality people to learn from, but you probably won't end up there permanently. Many people start at these firms on the "sell-side", learn a lot, and then move to some sort of "buy-side" firm -- either the prop branch of an IB or a hedge fund. Hedge funds can be great places to work, though I tend not to recommend them as a first job. Often the starting compensation is higher, and the environment can be cozier for a quiet academic. Generally, your boss is your entire world there -- so choose carefully if you follow this route. Also, they have traditionally been considered career destinations rather than entry points. Be mindful of whether the hedge fund is large and well known. Only a few of the biggest, best will help your resume.

Some common roles for physicists are listed below. Bear in mind that preparation is difficult without knowing your ultimate path. Programming experience in C++ and/or Java is important, as is knowledge of at least one scripting language (Python, Perl, etc). Knowing your way around a *nix environment can't hurt either. Be careful how you portray yourself, however. Unless you want to become a programmer, avoid pegging yourself that way.

(1) Developer/Programmer: If you enjoy programming, this can be a great route. Large institutions can be challenging for the starting physicist, and long term career growth tends to be along the managerial route. My personal opinion is that small firms are much better in this regard, even if the risks are higher, because you probably don't really know what you want to do. Despite copious claims to the contrary, my observation has been that it is very hard to move from I.T. or other purely programming roles into research or trading positions. If you are targetting such roles, expect to be grilled hard. Re-reading Stroustrup's book on C++ isn't a bad idea. Some additional topics people tend to ask about: STL, Boost, Template Metaprogramming, various simple containers and algorithms.

(2) Statistical Arbitrage: If you want to play with statistics and write programs to beat the markets this is a good area. It combines lots of programming with statistical inference and computer theory. This can be an excellent field for an experimental particle physicist such as yourself. The data issues and statistical analysis are quite similar. If you're lucky, a role in statistical arbitrage can combine research and trading.

(3) Options theory/interest rate modeling (MBS, etc): This uses path integrals, Monte carlo analysis, etc to integrate over paths. There are elements of stochastic analysis, etc, as well. If you like heavy duty math and aren't too worried about statistical validity, this is a very interesting field.

I would suggest that you not apply through HR (firmwide or I.T.) at most large firms. As in academia, you are much better off contacting a specific group that is of interest. Ask for an informational interview with the head of the group. If you make a good impression, they either will consider you for their group or pass you along to colleagues. Despite the apparent competition in this job market, there is a matching inefficiency and good candidates are scarce. Almost all my hires have been referred to me.

My best suggestion is that you allocate a few months to shamelessly networking, determine the specific opportunities available to you and whether they are of interest, and make a decision by a fixed date. Assume that you will remain in your first job for at least 3 years and ignore any promises about your career path. It's great if they transpire, but things change quickly on wall street and you can't count on them. Also, don't worry about the money once you start. The first few years are for learning and building a reputation; think of them as a postdoc. All of the quants I have know who stuck it out for 8+ years were happy financially (though as twofish-quant points out, it is relative). The one thing you cannot afford to have on Wall Street is an ego. If you compare yourself to the next guy, then you will always be unhappy. The worst career blunders I have seen have arisen from that sort of thinking. Otherwise, the $$$ can be quite nice.

On the practical points:

Hours: This depends on your goal. If you want to take the fast track (or have a good shot at it), you will have to work very long hours. This should be fun, though. If not, the slow track is fine. You will do well financially and can find the balance you desire. If you can afford to, I would suggest committing yourself 100% the first few years and then things should ease up a bit (and you'll have a sense of what you want).

Social life: Same as anywhere. Others are in the same boat, and the city abounds with ways to accommodate young people with money who want to meet. Starting a family can be rough if both of you are working. After a couple of years, when you know your way around the city, you would have an easier time. I've known many people who've done this and are quite happy with their lives.

Location: NY, London, Tokyo. There are some hedge funds in Chicago, Greenwich/Stamford, and California, but most likely you will spend your career in one of those 3 cities. There are worse fates as these things go.

Money: You will be poor the first year. My standard of living during my first year on Wall street was lower than as a grad student. After a year or two most people seem to do ok. Bear in mind that pay can be high on wall street, but there is no job stability. That's the tradeoff. This is something to consider if you one day wish to raise a family.

Internship: This can help, and may give you a sense of whether a firm, group, or field will work for you. If you are well received, there is a chance they may try to buy you out of finishing grad school. Approach this as you would a job -- target individual groups if you can.

Pros: Money. Can be challenging and exciting. There is a satisfaction to being in the middle of the action.

Cons: It's not physics.

I hope this helps. Best of luck.

Cheers,
Osmosis

 

[spartan711]

Thanks Osmosis for that informative post, and welcome to PF!

I am a college sophomore thinking about environmental engineering / industrial engineering. I have also been thinking about becoming a 'quant' for sometime now, ever since I saw it on this forum. My question is, is it standard for ANY of the jobs posted above to incorporate profit-sharing? I recently read on BBC about a quant who received 20% of his model, for a total of 2-4 million dollars/yr.
http://news.bbc.co.uk/2/low/business/7109805.stm

 

[oreliphan]

Thank you Osmosis! (Especially for signing up just to reply) It was a great post!

Well, I just took the C++ test (IKM) for one of the places I was applying for. I can say it's pretty difficult and tests arcane syntax and knowledge.

It was a good test though in the sense that it was adaptive and the point system was fair. Still, one wishes one could have an in-person interview to prove more and better.

Anyways, a whole new thread could probably be opened for this sort of thing.

 

[twofish-quant]

It was a good test though in the sense that it was adaptive and the point system was fair. Still, one wishes one could have an in-person interview to prove more and better.

The main purpose of these screening tests are intended to make sure that you have basic knowledge of C++ and it's worth flying you in for a face to face interview. One thing that may surprise you is the number of people that have good looking resumes, but don't even have basic programming skills (i.e. what is a constructor? what is a binary tree?)

I don't think that screening tests are actually used in the hiring decision.

 

[twofish-quant]

My question is, is it standard for ANY of the jobs posted above to incorporate profit-sharing?

Not formally, but there is a lot of informal profit-sharing. If your company makes money, your end of year bonus goes up. If your company doesn't, your bonus goes down assuming that you still have a job.

I recently read on BBC about a quant who received 20% of his model, for a total of 2-4 million dollars/yr.
http://news.bbc.co.uk/2/low/business/7109805.stm

Articles like that give a *terribly* distorted view of what quants do and how much money you can reasonably hope to make.

 

[osmosis]

Hedge funds tend to have percentage deals, but only for PMs. Generally, you have to have a track record. Very few groups in large firms offer such arrangements and only if they really want you (read you're famous/have made gobs of dough in the past/are in a great situation already). It really comes down to what you negotiate in your contract. A typical hedge fund charges "x and y%" to its clients. x is a fixed % management fee for all the capital, nominally used to defray costs, pay salaries, etc, and most commonly is around 2%. "y" is a percentage of PnL, typically accumulates across years (so if you lose 1MM one year and make 2MM the next, you get paid 1MM), and only is paid to you when you are positive on the year. A typical trader with a track record won't start their own fund. Rather, they will join one of the large umbrella hedge funds. These only pass along some of the "y%". This usually ranges from 15-25% after overhead (which can be nebulous at some firms). The gist is that if you are a senior trader, have a track record, and want some capital to run a strategy, then yes you can get such a deal. If not, you probably won't. There can also be profit-sharing in the sense that (theoretically) discretionary bonuses at IBs are tied to PnL and (very indirectly) a large % of your bonus is in bank stock. Finally, some hedge funds allow employees to defer large %'s of their bonuses into the fund itself on a pre-tax basis. This often applies to both PMs and other employees.

As for the C++ test, I agree 100% with twofish-quant. The certifications tend not to buy you anything. Most preliminary screenings are pretty simple and are meant to see if you're in the ball-park. It is VERY hard to find good people for a top quant group. In my experience, about 50-100 resumes lead to one hire. These are not spam resumes, but top university grads. As twofish-quant has said, impressive resumes don't translate into impressive candidates. It is astonishing how many people who are brilliant on paper cannot answer simple questions. Your best bet is to practice interviewing with shops that are tough but aren't on your A-list. This will give you practice being put on the spot - and you never know, one of them may end up on your A-list. Usually, it's fine to say you don't know something esoteric as long as you didn't claim it on your resume. Many groups are looking for bright grads that they can teach.

 

[spartan711]

Osmosis, did you mean Project Manager by PM? Just confirming, as I had to look it up for this context.

"He will not reveal exactly how much he earns but he says that so-called algorithmic traders are usually paid about 20% of the money their model makes and the typical algorithmic trader will make his employer about US $10-20 million a year."
(from BBC link I posted earlier)

So is this guy talking out of his *** then? When I first read that article, I believed most people in industry made 20%. But now, with two-fishquant and osmosis stating the contrary... I'm confused.

 

[osmosis]

PPM is portfolio manager. These are people who have their own PnL (like a doctor has his own practice, or a lawyer his own clients). It means you have discretion over how to trade someone else's money.

There's nothing fishy about the quote, though it can be misconstrued. An algorithmic trader in the sense mentioned is not some guy out of school. A 10-20MM strategy is of respectable size -- especially if it has a high Sharpe Ratio. Very rarely will a group pay you a % of PnL for a strategy they came up with and had you implement. Rather, you have to add value. This means coming up with your own ideas, or setting up shop on your own (as a PM in a big fund). Here's a simple test: If you can convince someone to hand you a big chunk of capital to trade at your discretion, then you can get paid a percentage. The situation is similar to a VC providing capital and infrastructure to a startup and allowing a % of profit. It is very difficult to get the funding, and more difficult to make a PnL.

 

[osmosis]

Oops, that was PM not PPM in the last post.

 

[twofish-quant]

So is this guy talking out of his *** then?

He is a rock star. Rock stars make millions. Most people in the music business are not rock stars.

The good news is that in finance you don't need to be a rock star to make decent money. If you have a Ph.D., then a decent starting package is USD 130K, and you can expect to make between 200K and 250K after a few years. The bad news is that you will be absolutely amazed at how little making USD 150K feels like. There are several problems. The first problem is that while there are a few rock stars, you run into them (and some of them are jerks). So if you make 150K, you'll feel insignificant compared to someone that makes $1M/year. The second problem is that rock stars drive up prices. NYC and London are really expensive cities in part because people that are hyper-rich spend lots of money which drives up prices for everyone else.

In most places, if you make $150K/year you are near the top of the food chain. In NYC, if you make $150K you are pretty close to the bottom. Most people in finance are closer to the bottom than to the top. Being near the bottom in Wall Street is not a bad place to be.

When I first read that article, I believed most people in industry made 20%. But now, with two-fishquant and osmosis stating the contrary... I'm confused.

A few people make totally insane amounts of money. Most people make decent but not totally crazy money. This has turned into a problem since the general public assumes that finance people make a lot more money than they do.

 

[twofish-quant]

This means coming up with your own ideas, or setting up shop on your own (as a PM in a big fund).

It also means that you need quite a large amount of social/sales skills. Basically you need the ability to look someone in the eye and convince them that they will make move if you make money, and in that sense the sales skills in selling your hedge fund is similar to that of selling toasters. And if you *do* have the ability to convince someone to give you their wallet, you'll do fine in pretty much any industry.

The one major difference is that in most industries having a math/physics Ph.D. doesn't help you with your sales pitch (and in most cases it will hurt), whereas for some types of hedge funds it does. Also, it's not a bad thing to dream as long as you realize that you are dreaming. Your typical Ph.D. has maybe a 1 in a 100 chance of making $10M/year in finance, which is pretty awful, but compared to what?

 

[oreliphan]

The main purpose of these screening tests are intended to make sure that you have basic knowledge of C++ and it's worth flying you in for a face to face interview.

Does a recruiter usually tell you if you don't make it through the assessment part?

According to Osmosis, some common roles include (1) Developer, (2) Statistical Arbitrage, and (3) Options Theory. May I ask twofish and Osmosis which of these roles you fall into? (Did you come in with a PhD physics, Osmosis?)

When twofish says the job can be a "glorified coding position," do you still on average spend more time talking with people? Or is it similar to other places that you've done software at? What are the differences? (Code, code, code - but this time, code relating to the market, as opposed to Code, Code, Code related to the petroleum industry)

 

[oreliphan]

Also, can anyone comment on the differences to work as a quant at a mutual fund as opposed to a hedge fund? Are they similar roles (ie babysitting a computer)?

 

[twofish-quant]

Does a recruiter usually tell you if you don't make it through the assessment part?

Yes. One thing that's good about going through a good recruiter is that they have several jobs lined up so if you don't do well in one interview, the recruiter will let you know what you should work on for the next one.

When twofish says the job can be a "glorified coding position," do you still on average spend more time talking with people? Or is it similar to other places that you've done software at? What are the differences?

You spend a lot of your time talking with people, and phone calls, and instant messaging. In finance there does tend to be a bit more "fire fighting" than in most other places. If you work as a developer at Microsoft or google, the odds are that you won't get a phone call to drop whatever you are doing and fix this problem *right now*.

Human relationships and business communications ability are extremely important. When things fall apart, you not only need to stay cool and calm, but also pleasant and polite even if you are in a less than pleasant or polite mood.

 

[twofish-quant]

y" is a percentage of PnL, typically accumulates across years (so if you lose 1MM one year and make 2MM the next, you get paid 1MM), and only is paid to you when you are positive on the year.

The other thing that happens is that if you lose enough money as a hedge fund, your funders will take out their money, your banker will cut you loans, and you will be out of business. Hedge funds have been failing left and right over the last year. The hasn't made the news because having a hedge fund fail is a rather routine thing that isn't a big deal, and it's not the end of the world when it happens. The reason it isn't a big deal is that when LTCM collapsed in 1998, it almost did destroy the world, and people quietly put safeguards in so that when a hedge fund fails now, it isn't a big deal.

As twofish-quant has said, impressive resumes don't translate into impressive candidates. It is astonishing how many people who are brilliant on paper cannot answer simple questions.

Also a lot of questions are actually psychological tests. When someone asks you "why did you leave you last job?" or "why are you working in finance?" they really aren't that interested in your reasons. It's more of a test to see if you can communicate tactfully and politely.

The other thing is that interviewers will generally ask you some hard questions that they know you don't have the answer to (and in most cases that they don't have the answers to) so that they see how you behave in that situation.

 

[oreliphan]

Edit: Osmosis - I realize that you mentioned you were a trader-quant in the beginning - so (2) Statistical Arbitrage I think. That is indeed what I want to get into.

 

[oreliphan]

Can anyone say anything about becoming a quant at a mutual fund? Is this similar to the role at a hedge fund? (Forex mutual fund in particular)

 

[story645]

In NYC, if you make $150K you are pretty close to the bottom. Most people in finance are closer to the bottom than to the top. Being near the bottom in Wall Street is not a bad place to be.

Man has wall street warped you. $150k in NYC can still buy you plenty of nice things. Not an actual dwelling near your office, though with the housing market as it is you may be able to rent a place with only two other roommates (instead of the usual 5). Seriously though, the median income in New York is far below the 150k mark; it tops out at around $65k for Manhattan. The mean income is much higher, but an utterly useless statistic 'cause of the extreme ranges we have in New York.

 

[oreliphan]

Man has wall street warped you. $150k in NYC can still buy you plenty of nice things.

I think this is indeed what twofish means, and is speaking in relative terms with the finance sector.

 

[ferm]

The first problem is that while there are a few rock stars, you run into them (and some of them are jerks).

That drives me to another question, if I may ask:

How is people in your work? Are there many interesting people (broad interests, etc.) or the majority is only interested in money? Do people working together socialize, have dinners, etc. or the competition is too high that you cannot have friends (and people stab you in the back)?

My idea is that, at least in the PhD profile, there has to be a bunch of very interesting people coming from different disciplines. On the other hand, I have met many students of business schools (BBA) and some of them are interesting, but I think the majority classify as jerks (though I don't know if this majority will eventually work in finance). Do you have to interact with people like that too often?

Thank you very much for your replies, this discussion is very interesting!

 

[twofish-quant]

Can anyone say anything about becoming a quant at a mutual fund? Is this similar to the role at a hedge fund? (Forex mutual fund in particular)

There's less heavy duty number crunching at a mutual fund because mutual fund companies like Fidelity are very restricted in what they can do. (Hedge funds aren't.)

 

[twofish-quant]

Man has wall street warped you. $150k in NYC can still buy you plenty of nice things. Not an actual dwelling near your office, though with the housing market as it is you may be able to rent a place with only two other roommates (instead of the usual 5).

If you have a wife and kids, the numbers change a lot. In particular if you want a place with decent schools, then it's going to cost you. There's also the 45% marginal tax rate.

This matters because a $150K job in NYC is probably comparable to a $100K job somewhere in say Texas, which makes a difference when comparing careers.

 

[twofish-quant]

How is people in your work? Are there many interesting people (broad interests, etc.) or the majority is only interested in money? Do people working together socialize, have dinners, etc. or the competition is too high that you cannot have friends (and people stab you in the back)?

Every company has it's own set of cultures. The place that I work at is very family-oriented so that there isn't a huge amount of socializing. Also, the other thing is that everything is pretty team oriented so that people are extremely friendly and helpful because making money is not a zero sum game. Any internal competition makes it hard to fight the people across the street.

Also being nice, polite, and friendly is part of the challenge. It can be surprisingly difficult to be nice, polite, and friendly when you are under severe stress.

On the other hand, I have met many students of business schools (BBA) and some of them are interesting, but I think the majority classify as jerks (though I don't know if this majority will eventually work in finance). Do you have to interact with people like that too often?

Since I'm in technology, I don't know that many people that have MBA's. However people that can't work well with other people, tend to not last very long in finance. One reason for this is the way that employee reviews and bonuses work. Because you get graded to a large extent by the people around you, so you want people talking about how nice and helpful you are.

 

[story645]

If you have a wife and kids, the numbers change a lot. In particular if you want a place with decent schools, then it's going to cost you.

That's what the outer boroughs are for. I'm slightly kidding here, as I do hear where you're coming from, and most everybody I know sends their kids to private school so I have an inkling of the vagaries of tuition rates (and I can still remember shopping for high schools for myself). And even if I say $150k can buy nice things, I could get a big place elsewhere for what I pay for a (150sqft) closet in Harlem and my mom's constantly complaining that I pay double what she does for groceries (and she's in Queens.)

Actually I have a quant question for once. Is it one of those fields that's hard on women? If you're young, single or newly married, and female, is hr afraid you'll bolt as soon as you get a kid on the way? (I know some fields do tacitly discriminate against women for this, so I'm curious.) Is religion a barrier to being hired? I know it's illegal and all, but will not being able to work certain days push you to the bottom of a hiring stack? I know that there are plenty of orthodox Jews working on wall street, but confirmation would be nice.

 

[twofish-quant]

Actually I have a quant question for once. Is it one of those fields that's hard on women? If you're young, single or newly married, and female, is hr afraid you'll bolt as soon as you get a kid on the way?

It's no worse than any other field in business and probably a lot better. HR tends to a female dominated area and there are enough alpha-female/supermom line managers that having problems with working mothers is career suicide.

Is religion a barrier to being hired? I know it's illegal and all, but will not being able to work certain days push you to the bottom of a hiring stack?

No, since if you have problems dealing with someone that is Elbonian Xenuist, it's going to be really hard to do business in Elbonia.

 

[Eren10]

I am studying Aerospace Engineering and hope to finish my Master in 1 year. I have interest in economics since many years , for my study I was to plan to combine technology and economics. firstly i choosed a study that combines math & informatics & economics, but after few months changed to aerospace engineering.

Now maybe ( still searching career options) I want to start a career in the finance , investment sector. At mine university I can follow some basic courses like general economics for engineers, computational finance, financial mathematics.

One teacher of me said that probability is very important. And If I do well I can do phd in uncertainty quantification for aerodynamic purposes, so i will learn a lot of probability theory.

An other option is to follow Master of Econometrics ( 1 year).

Is Master enough or is phd preferred in engineering studies ? I am thinking that master should be enough.

I am from Europe, I do not know if Wall Street is still attractive for employees of Europe, Euro increased too much
I am waiting for any advice. Thanks.