Richard Craib - Crowdsourcing Predictive Algorithms

**Patrick O'Shaughnessy** (0:04)
Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_3** (0:24)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (0:59)
I intentionally avoid the world of quantitative investing on this podcast. The whole point of this format is to learn about many different fields, and the vast majority of my time is already spent in the quant world. Occasionally, I've broken this rule because of something unique, including this week's conversation with Richard Craib, the founder and CEO of Numerai. If you listen to the podcast often, you'll have heard me reference Numerai, a hedge fund which blends quant investing, cryptocurrencies, crowdsourcing, and machine learning. Talk about a PR company's dream. One important note, Numerai is both incredibly open and very secretive. You may sense a bit of frustration on my part, but that is only because, as a fellow quant who loves details about data and modeling, we couldn't go deeper into the details on the record. We discussed how Numerai has created an incentive structure to work with data scientists around the world in an attempt to build better investing models. The idea of having data scientists stake cryptocurrency in support of the quality of their models is fascinating to me.
Like many hedge funds, Numerai doesn't share its track record, so we don't know if this works. But I hope you, like me, use this conversation as inspiration for how different technologies can intersect. Like the Hashpower documentary, this episode and other Hashpower singles are brought to you by Fidelity Investments, a company that is constantly researching and experimenting with emerging technologies like crypto assets and blockchain to improve the lives of their customers. Fidelity provides a comprehensive set of products and services to individual investors, employers, and financial advisory firms. For more information, please visit fidelity.com.
Please enjoy my conversation with Richard Craib.
So Richard, thanks so much for joining me today. You represent such an interesting intersection, which is my favorite kind of investing conversation between kind of traditional quantitative investing, machine learning slash artificial intelligence, but also blockchain technology. And I've always used Numerai as one of the interesting examples of people using blockchain for something that seems to make a lot of sense. So maybe you could begin just by giving us a touch of background on how you came up with this idea, and maybe how that's related to your own history and investing your own professional background. And then we'll go as deep as possible into some of the interesting features of the Numerai model.

**Richard Craib** (3:06)
Sure. Yeah. The first sort of ideas for Numerai came when I was working as a quant. And there was some quant in the fund I was working at, but there wasn't any machine learning that they were doing. So I decided to spend a year researching how we could use machine learning. And then I finally found something that I thought was quite good. But at the same time, I was also playing in data science competitions on Kaggle.
And I sort of thought, OK, well, the best way to get really good performance is to get the world to compete on the data set. And that was true of nearly everything that had ever been done. The Netflix prize was one way better than the people at Netflix could do. And then every other tournament on Kaggle that was one, is like way better than the companies that were hosting the competition could do. And at this time, I was also reading about Ethereum.
And I thought, you know, maybe there could be something interesting where finance, which has kind of stayed the same for a long time, could be changed by these two technologies, blockchain and machine learning.

**Patrick O'Shaughnessy** (4:09)
Maybe you could describe the actual process here behind outsourcing, if you will, the analytical or the model building piece. We're going to spend a lot of time on data and what kind of data is and what you do to it to make this possible. But if you could just describe for those unfamiliar, the actual sequencing of what you put out there, how you take that and incorporate it into your system.