My friend's son recently graduated with a PhD in physics and his first job out of grad school gives a $500k salary

Yes, I buy the million coin flipper or monkey or whatever argument -- eventually someone gets heads 40 times in a row. But my original RenTech comment was directed to someone who said that no quant fund would take Buffet's bet to beat the S&P consistently. My point is simply that RenTech has consistently beaten it, bet or no bet. And yes RenTech may be the lucky coin flipper, but then so might Buffet.

Beat it net of fees?

Any fund beating the market, consistently, is cheating somehow. Anyone who works in finance knows what I'm talking about. Sometimes betters get lucky, but they never stay lucky long term. The firms and funds beating the market over multiple years are either recruiting insider information and have just never been jammed up, or are engaging in other nefarious deeds. Ask Madoff's victims why they never wondered about how he was doing so much better than everyone else out there.

If you are in a fund that is greatly over-performing, you should be asking yourself how that's happening, and how long it can reasonably continue.

slow daddy wrote:

yeah that does not sound at all commensurate with what people should expect from a situation like this. I would expect the average salary for a starting PhD in industry is 70-80k

I have a PhD in physics, and you are correct.

I don't know the finance industry, but I don't see why this would be so weird. In baseball/basketball/etc, players get huge signing bonuses all the time based on potential.

I have no idea why this wouldn't happen in finance where

1) there is a lot more money

2) salaries can be even more stratified than sports

So if a kid comes out of Caltech with groundbreaking research and tons of potential and decides that for some reason he'd rather go into finance, no company is going to take a risk and go big on him?

For instance, if Terry Tao (potentially the world's top mathematician and was a prodigy) had come out of grad school and said "Hey, I'm going to skip this math thing and go into finance. Whaddya got?" you've got to imagine that some company would have thrown $5 million at him. Why? Because you get someone of that caliber and they might flame out or they might make you $30 million. They might stay 5 years and make you $100 million.

If this kid is even a lesser star, why wouldn't a company take a gamble on a guy like that and offer $500,000, especially if he has some experience and they know other places are interested?

Of course, given the ratio of trolls:physics geniuses on LetsRun, I'd bet that this is the former.

But if starting salaries like this don't happen already, I've got a great business plan:

1) throw $1 million/year at each of the top 10 students coming out of grad school in math, physics, and maybe some types of engineering, do this for the US, for China, and maybe a couple other countries. Do the same to the top 40 professors under 40 in these subjects. Maybe throw in the top 10 Putnam finishers, some chess Grandmasters, and some other assorted geniuses.

2) Since no one else is offering this kind of money, you will have at least 50 geniuses accept your offer. This will cost less than $100 million, so less than your CEO (you) makes.

3) Profit!!!

If you start out saying you don't know the finance industry, nothing you write after that matters.

Also finance isn't math. The wealthiest people on Wall Street are private equity guys, not quant traders. And it isn't close.

another user wrote:

I don't know the finance industry, but I don't see why this would be so weird. In baseball/basketball/etc, players get huge signing bonuses all the time based on potential.

You evidently don't know analogies, either, because ballers are a bad analogy for Terry Tao.

1) Ballers are already balling. There's a lot of tape of them balling. General managers watch that tape to get an idea of what exactly they can do. Even with the tape, GMs strike out a lot; there are plenty of draft busts.

There was no tape of Terry Tao balling. None.

2) There is an easy way for smart guys who think they can ball but don't have tape to get money. It's called a startup. Startups let Mark Zuckerberg bet on himself using Peter Thiel's money.

So: Maybe someone gave the friend's kid a tricked out lab, or a good team and paid him with some special stock options. It seems unlikely they gave him a lot of salary. Salary puts the risk in all the wrong places.

3) Nathan Myhrvold.

4) Forget Terry Tao. Would anyone have bet on Jim Simons fresh out of grad school? He did well at both math and finance. He made over $18 billion from the quant hedge funds he started (Renaissance Technologies). He started it after he won the Veblen Prize in Geometry for discoveries that helped lay the foundations for modern physics (Chern-Simons theory).

I think we agree. Consider this. The population of the world is roughly 7.5 billion, with the population of India and China combined at 2.7 million. They are arguably more aggressive at identifying mathematical talent than the us is, which has a population of about 300 million. We are wise to consider a Madoff scenario or the millions of monkeys typing War and Peace. I am not dismissive of Rentech, clearly James Simons et al are on to something but consider this. The incidence of bipolar disease is about 2.7% or or about 6 million in the US over the age of 18. Ivan Boesky famously said if you get 100,000 manic depressive risk arbitrage players, someone is going to be a billionaire and attribute it to his intellect. I,humbly, would simply point out that Warren Buffett, who has more money than any of them, says it is all a bunch of b******t

old timer here wrote:

My friend's son recently graduated with a PhD in physics from a top 10 school, and his first job out of graduate school is paying a salary of $500k. From what I was told, physics PhDs are in heavy demand in every technical sector now including tech and finance. I hear that many are choosing to not go into academia because of this. Times sure have changed!!

Damn, where does he work? My friend has a physics PhD but works at the university for minimum wage because he can't find a job.

old timer here wrote:

My friend's son recently graduated with a PhD in physics from a top 10 school, and his first job out of graduate school is paying a salary of $500k. From what I was told, physics PhDs are in heavy demand in every technical sector now including tech and finance. I hear that many are choosing to not go into academia because of this. Times sure have changed!!

So how many roommates does he have in San Francisco? Is he coach surfing while looking for an apartment to rent?

My cousin's hairdresser's ex-nephew-in-law makes over $60k working from home. True story.