Ken Griffin: Investors Need The Right Toolkit At The Right Moment In Time

During his recent interview with Yale School of Management, Ken Griffin explained why investors need the right toolkit at the right moment in time. Here’s an excerpt from the interview:

Griffin: So now, how did I end up being an entrepreneur? And let’s be clear, I ended up being successful. And those don’t always go hand in hand. And I’m very appreciative of the fact that we’ve had a remarkable outcome.

As a acquaintance of mine who started one of the most successful internet companies of all time put it, “Your great entrepreneurs have the right toolkit to solve a problem of that particular moment in time.”

So for me, that toolkit was an understanding of software engineering, an understanding of mathematics, a background in economics, a passion for finance, and a belief that you could use quantitative analytics to have a competitive advantage in the financial markets.

And believe it or not, in the 1980s, that was still a reasonably novel thought. In fact, one of my earliest hires was a Russian rocket scientist.

And one of my friends in Wall Street called me up and literally said like, “You’re not trying to put man on the moon, you’re trying to make money.” And I’m like, “No, no, I believe that this is the future. That those firms that can price derivatives analytically are going to have a real advantage.”

Now, he was a partner at one of the most successful investment banks that no longer exists. And we’re at Citadel today as one of the largest market makers in the world. So I had the right toolkit at the right moment in time, and I think my friend’s really right.

It’s thinking about what tools that you have that at this moment unlock problems that just simply didn’t exist before now. Everything we did back in the early 90s, you could take a few courses in quantitative finance here at Yale, you’d know everything we did. It is completely commoditized.

I mean, that’s just a profound fact. And all the hard problems that we solved analytically on computers and thought about how to make this work are like on internet sites these days. I mean, the world has just leaped forward that fast, that a huge competitive edge in 1990 is just, it’s trivial today.

That’s how fast progress has been in finance. Now, the fortuitous part of the story is that over the last 30 years, we’ve radically improved our business and transformed what we do and how we do things.

We continue to build our competitive advantages in the various businesses in which we could choose to compete. And that’s the essence of running a business. How do you build your competitive moat?

So for us, we would trade, you know, think of it. So we put, we trade financial assets that involves a research process. We need to understand what moves the prices of assets more thoughtfully and more quickly than our competitors. And then trading is simply how we monetize our research.

The glory’s in the research, trading’s the monetization of the research.

You can watch the entire discussion here: