The 2+2 Hedge Fund

[Redsox]

David,

Any truth to the rumor that Yass and SIG tried to hire you a couple of years ago, and you turned them down? I play a regular 7-stud and nlh game with many of their traders (I work for Salomon on the floor with many Susquehanna guys), and someone said that they thought Yass had tried to hire you.

And as for Yass returning 25%. There probably was a time where he did QUITE a bit better than that. But with multiple listing, NBBO, and many big firms like mine and Timber Hill quashing the bid ask spread and competing for volume, it is highly unlikely that he does that well anymore.

[David Sklansky]

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[Dan Mezick]

OK, this thread has gotten **really** interesting. Jeff Yass is making offers to David Sklansky?

For those who do not know of Jeff Yass, he is one of the most famous quantitative market traders in the world. As in, world-historical. His firm trades for it's own account and has over 500 employees, hundreds of whom are full-time traders.

You gotta love it! Here's a link:
Jeff Yass Backgrounder

David, might you consider sharing with us your relationship (if any) with quantitative analysis of securities and markets?

It seems obvious now that you have had huge opportunities in markets and finance at several points along your career path, and explicitly decided against these, choosing poker/publishing instead.

Can you volunteer just a little more background on these decisions? I can't be the only curious fan. Maybe you are simply not a morning-person and prefer to sleep in? Etc.

As a postscript, I find it very interesting that several guys who claim to be heavily involved in trading markets have chosen to semi-attack Sklansky on this thread.

I say semi-attack because they do so anonymously, behind an alias, and therefore without accountability.

It appears David completely welcomes (and may in fact deliberately encourage) such hazing.

[BarronVangorToth]

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I say semi-attack because they do so anonymously, behind an alias, and therefore without accountability.



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What else is the internet for than to make fun of people without them knowing who you are so that if you ever step over the line you can simply come back the next day as New Guy X and start afresh!

I've long since thought "handles" are absolutely ridiculous, especially when I've seen exchanges between people who meet "in real life" from various chat boards (we have this all of the time with my WWE game) and everyone, say, at a convention has their name on their badge and everyone is trying to figure out that John Smith is 420-4Life, etc etc.

It's so much easier to lack accountability.

As far as the topic at hand, ANYONE who doubts that Jeff Yass is anything short of The Real Deal knows not what they are speaking about.

Barron Vangor Toth
www.BarronVangorToth.com

[Redsox]

Dan,

I don't know what David's relationship is with Jeff Yass, but here is what I do know. I work on the floor with many susquehanna traders, and I'm pretty familiar with their training methods. Most of their early months as trainees at SIG include many many hours at the poker table (I think they mostly play 7-stud, but they also play some NLH). I also know that susquehanna runs several big NLH tourneys a year with the winner getting a paid trip to the WSOP main event. (the average susquehanna trader is a hell of a poker player) I also know that Sklansky's books are more or less required reading for trader trainees, and I've heard that Jeff Yass is evidently a world class poker player (as well as wealthy beyond all of our wildest dreams). I was the one who'd heard that David had been offered a job by Yass. I work on the Philly floor (Susq is headquartered out in Bala Cynwyd, outside of Philly), and I'd heard it from a couple of guys on the floor that I play poker with and generally socialize with. So that's what I know. I think its not only credible, but very likely that Susquehanna is trying to hire Sklansky, considering the way that they train their traders. Much of options floor trading (in other words market making) has something in common with poker. (i.e. partial information game theory, memory, etc.)

Eric

[cwsiggy]

Market making is not very comparable to poker. It is a very lopsided game with the advantage of knowing your order flow and limit orders on your books. Raw position trading takes skill but any monkey can trade order flow.

[Redsox]

Interesting theories. First off, I think that Jeff Yass (president of susquehanna, one of the largest market making firms in the world) would disagree with you that the skills used in poker do not translate well to market making.

And as for your positional trading vs. market making comment. Lets examine the difference between the two in today's market place. A guy who sits off floor a makes positional options trades can get himself into a position that makes sense for him, and with the current market environment and competition (i.e. nickel wide markets, nbbo, streaming, the ise electronic market place, the box in boston) can do so losing minimal edge to the bid ask spread. A floor "market maker" must provide certain liquidity guarantees (especially to his own firms customers), must show the same market and size to broker dealers as legitmate retail customers (called one size fits all...3 years ago I could be mega wide and fade my markets for off-floor bd's, firms, etc....not the case any more). And at the same time, after making sickenly tight markets to keep order flow (most floors now have "short fall" fees. If you do not capture enough of the order flow in a certain name for the month, you have to pay the exchange a fee for not doing your job well enough), now I have to manage a position (just like the off floor guy), but instead of being in the position that I want to be in, I often find myself in the position that the rest of the world DOESN'T want to be in. How is that easier than doing what an off floor hedge fund or BD does? Please let me know in an environment which incldes NBBO, streaming markets, the ise, etc. why it is so easy to make markets.(If you are not familiar with these above terms, you don't know anything about making markets, and shouldn't bother trying to answer the question). I patiently await your response.

[cwsiggy]

Most of my comparisons were based on my experience making markets on the Nasdaq, not the floor which probably has very, very different rules. Sorry for the confusion. I will admit I know nothing of the intricate rules of the floor trading. My point is that as a market maker On the Nasdaq, at least 3 years ago, you had an unbelievable edge in using your order book as protection. Floor traders have the same. If I got a sell order for say 10,000 shares at market or even a limit price of say 10.00 and I know my book is filled with buys at 9.92, 9.93 - I know I can take that position with minimul or at least quantified risk - but you know this! Yes, the customer can cancel those, yes you need to be careful not to piss off the salestraders by going bid above a recent order, but your advantage is huge. Being a market maker is like being the House in Vegas. You almost can't lose. All I was saying is that straight out order flow trading is easy on the Nasdaq. Of course any market maker can take a positon, add to it, take on more risk and that takes skill, but not as much as straight position trading/investing - those people don't have books and order flow to constantly bail them out!!!!! So many times we had positions that made us nervous and the salestrader covering Smith Barney would call over and say "don't worry, he's got a lot more this week" or "My guys done - do what you want with the position" Imagine playing poker, and instead of 9 outs to make your flush you have say 12! I still think that the comparison between poker and market making is weaker than the comparison between poker and position trading. Poker and "Investing" are games of incomplete information, market making less so.

[Dan Mezick]

Red,

Thanks for the extremely interesting info. (Poker and Sklansky and trading) are interesting topics to say the least. Thanks for posting this detail here.

[jakethebake]

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David,
I just decided to go back and look for this thread after running into an analyst from SIG earlier this week. He was telling me what a big part of that firm's culture poker is. Apparently they have training classes, and their employees, traders in particular, are expected to log a certain number of hours at the table. He said they have a poker library, and you always see the new traders carrying TOP around. He also mentioned Bill Chen. Funny I come back looking for this thread and the last posts were in reference to Yass & SIG.