John Krane, Ph.D. Experimental High Energy Physics, Quantitative Financial Analyst, Third Millennium Trading, Chicago

By Meghan Anzelc

John Krane started college at the University of South Dakota to get a business degree. He fell in love with physics in a non-majors course. Krane says, “college physics…really seemed beautiful to me.” He continued taking physics courses and ended up with two bachelor's degrees, in Business Administration/Management and in Physics. Although he went to graduate school at University of Nebraska-Lincoln and got his PhD, he never intended to become a professor, saying, “I had no training or inclination to teach, though people told me I was very good at it. ‘Yeah, I'm good at digging ditches too, but that doesn't mean I want to do that for a living either,' I'd reply. I wanted to show myself how smart I was and get a PhD in a field I loved. More school was much more appealing than a probably-crummy job in Sioux Falls , SD anyway,” says Krane.

Krane did well in graduate school, studying high-energy particle physics. “After my PhD, I was very highly sought, and decided I would accept a high-energy physics postdoc position,” says Krane. “If I was still highly-sought after my postdoc and if I didn't have to teach, I might stay in physics. If not, then not. Turns out not. Faculty-level positions without teaching duties are essentially extinct now. So I left.”

Krane says that he had imagined his career to be “working for Lockheed, Honeywell, or GE in some capacity, using my business degree as much as my physics degrees.” But during graduate school, Krane attended a lecture given by a financial recruiter, and by the end of the lecture he says “I knew what I wanted to do.” During the lecture, the recruiter “outlined the usefulness of scientists in financial analysis, what a ‘quant' did on a daily basis, and what the income might be. Many in the audience were horrified by the thought of turning their skills to financial markets… physicists were scorning the idea of selling their souls or turning their backs on beauty just for a quick buck. The recruiter was talking about ‘actually doing something useful for the world'.”

So what was it about financial analysis that convinced Krane this was what he wanted to do? “Financial analysis excited me with the fact that I could use most, if not all, of the skills I developed in physics, while never having to lecture a bunch of whiny medical students who would rather be anywhere else and yet contest you on every point you mark off of their tests and homework. There is also the fact that most scientists are very underpaid relative to their education, and a ‘quant' (despite the somewhat pejorative-sounding name) gets a very handsome salary plus a fraction of the money their systems make for the company.”

As for what a quant does, Krane says in his job, “I create, investigate, model, and implement systems that will make money trading in various financial markets. I have studied stocks, bonds, stock options, index futures, index options, and commodities futures. Each of these markets differs dramatically from the others. I have studied trades that open and close over the course of seconds, and trades that open and close over the course of many months. I have also built portfolios of hundreds of stock positions that never close; they just rebalance in relative proportion from time to time.”

Krane says that to get into the field of financial analysis, he mainly looked at finance want ads. “I looked at the ‘help wanted' ads, and also at the ‘employment wanted' resumes. I tried to see what employers wanted compared to what I had, and how I would have to be better than the competition. All of this I found online, at websites that cater to quants. In the next few years, I took steps to ensure that in the course of doing my job in physics, I was also gaining skills I would need in finance if and when I left.”

As for his job applications, Krane says it took him a while to get his resume right. “Like most physicists, my first resume was an exercise in bragging about all the great work I had done. Nobody reading the resume really cares about that, they want to know your skills and how they might apply to what they want to do with their company. It was difficult to stop using my resume to say, ‘I'm an awesome physicist, and I know some pretty big words that you don't' to ‘I have skills and experience you can use, and I know something about your industry'.”

When asked about what he wishes he had done to prepare, Krane replies, “more statistics classes would have helped me both in physics and in finance, so this is something I should mention. Frankly, I sometimes wish I had done less to prepare and just ‘jumped ship' out of physics soon after my Ph.D. I would have started my better life that much earlier. Unfortunately, I didn't learn C++ until my postdoc years, so I would have needed to acquire that skill in another way had I left earlier.”

As for other necessary skills for this field, Krane says, “the broad skills you need for this work are the ability to recognize patterns, the ability to mine vast quantities of data, and the ability to write the code that performs these tasks for you. Because there are plenty of people trying to make money in financial markets, you often need to have an element of creativity and cleverness to find a new way of looking at the same data that is available to everyone.”

Krane says that his transition from postdoc to the world of finance was a difficult one. “I joined a very small company with no infrastructure for researchers. I had to collect all financial data myself, I had to write all financial software libraries myself, come up with all trading ideas myself. Unfortunately, the ideas you get first are the ones everybody else gets first and the market becomes too efficient to exploit, so it was a long time before I had money-making ideas” he says. In addition, he adds, “there was also the difficulty of getting hired in the first place. There was an economic downturn in 2003 that made large companies very reluctant to hire for a long time, right when my postdoc ended. Back in the 1980s, physicists were a hot commodity in finance, but since then schools have been teaching students all the same skills in their masters programs (for instance, MS in Financial Mathematics, MBA in Analytic Finance, or Ph.D. in Economics). People would ask, ‘Why hire a Ph.D. with a merely loosely-coupled skill set when I can hire a person trained specifically to do the exact work I need?' But I was stubborn and got my job. Let me say that this arrogance that training in physics is good preparation for just about any job is an opinion not shared by most people outside of physics.” Krane says too that “many people in physics were shocked that I was leaving. There is an opinion that only unsuccessful physicists leave the field. This is of course patently untrue.”

So what does a ‘quant' do all day? Krane says, “because of several trading systems I have developed, I collect market data in the morning and at 2pm . I then process the new data and generate lists of trading signals. I pass these signals on to others, who handle the actual trading. So this is when I actually implement the systems I create. In between these two implementation periods, I'm free to research whatever I feel like researching. If I need a few weeks to study extensions of the Kalman filter, I do so. If I think trading gold is worth investigating, I do so. Once, my partner became fixated on internet poker. He wanted to create an applet that would play poker for money (from an offshore account) against hapless unsuspecting humans. I had to tell him that this was not an appropriate use of our time, nor an appropriate endeavor for our company even if he could get it to work, and furthermore I would advocate against his idea on ethical grounds if he ever tried to bring it up again. I nonetheless found myself teaching him how to bluff and play Texas Hold'em for M&Ms, and enduring several brainstorming sessions on poker theory. (What can I say, it was really interesting!) It illustrates how much freedom we have to choose our projects.”

Krane says that what he likes best about being a ‘quant' is that he's challenged every day. He says, “I feel this is an appropriate way for me to spend my mental energy. I look forward to coming to work every day. I have never been able to say that for more than a few weeks at a time in the past. It has been almost 4 years in finance and there have been only a couple bad days.” He adds, “another good thing is that we have an objective measure of worth: how much money you make for the company. There is no real need to argue about which analysis technique is theoretically better if one makes significantly more money than the other. Furthermore, there is no need to play politics with promotions or anything else when you are judged by how much money you make for the company. People can bicker for a long time about whether the right person was selected from a crowded field to become a professor, but that will only rarely happen in finance. Science should be inherently fair, but not everyone finds it so.”

Krane says that the only thing he misses about physics is the travel. He says, “I went to some very interesting overseas locations for conferences. Of course, now I can afford to travel purely for enjoyment and sightseeing; I don't need to spend time in a convention center ostensibly working but without the comforts of home (assuming one finds home comfortable, which I do).”

Other than travel, how else does his career affect his lifestyle? Krane says he's now an early riser, waking up “early in the morning ( 5:30am ) to get to work by 8am , commuting by train. If I lived in the city, things would be much easier, but for now I can no longer stay up as late as was my custom. Being absent the bar or nightclub and missing Jay Leno is not necessarily a bad thing. On the plus side, the stock markets close at 3:30pm , central time, and after that I'm free to leave if I wish. Generally, I do get home a little before 5pm .” However, Krane says, “the best improvement to my lifestyle compared to physics is the lack of a workaholic culture. There is zero chance I will get an email outside work hours, or on the weekends, so I don't feel the compulsion to check my email first thing in the morning and last thing at night like I used to. When I'm away from work, I'm away from work. I can't emphasize enough how much better my life is now due to this fact alone. I don't even use email much for work: I only send the occasional histogram or summary. Most of my contact with my boss is via Instant Messenger.”

There are other benefits too, such as healthcare. Unlike his position, Krane says, “If you go into high-energy physics, you will often live in residence at a national laboratory. Most universities insure you like any other student: for health care, check-ups, etc., you need to go to the university health center. So, if you have a chronic condition, your health (or wallet) will be in jeopardy unless the special arrangements are made. If you are a woman, birth control pills usually require an annual check-up, so you have to fly back to the university annually to get them. Or pay locally, leaving your university insurance benefits unused. Or go off the pill entirely and (in principle at least) have a higher risk of pregnancy and not completing the Ph.D.” He cautions students that “some universities treat postdocs as students for health purposes, so be aware, and ask questions.”

When asked about career advice, Krane says, “The first thing I would ask is, ‘Do you want to be a teacher?' If the answer is yes, then a career as a physics professor is appropriate.” He adds, “you will (probably) be able to do research to some degree, but not so much as a postdoc. You will also get to mentor young scientists at the graduate level. But in my observations, mostly you will teach, work on your grant(s), and play faculty politics.” However, he says, “if the answer is no, then you should plan your next move as soon as possible. You needn't jump out of physics right away, but you should start planning right away.” What about the third option, for those who don't know if they want to be a teacher or not? Krane says, “then take some time to find out what your professor/advisor/mentor/physics hero does every day. How much time for research, how much time teaching and grading, how much time at work, at what age does a professor retire. Try to get the real answer, not a sugarcoated one. Rather than pepper him or her with questions, see if you can get most of the answers with observation. Then ask them how they like their job at this current university, and if they plan to stay. See if that's the life you want for yourself. Do the same with postdocs and other professors in your department. Recheck at different times of year. Check your department newsletters for the ‘What ever happened to…' section to see what other students did with their lives after graduation. Note that this is a biased sample of success stories, but it is nonetheless interesting.”

For those wanting to go into a quantitative finance career, Krane says it “depends on the education level of the person. If we are talking about an undergraduate or graduate student of few years, my advice is to leave physics as soon as possible. Enroll instead in a MS program in financial mathematics or whatever the equivalent is in your current institution. If you absolutely must have a Ph.D. for yourself, you can get it, and you'll usually get it quicker than a Ph.D. in physics. Even if you do want to be a teacher, you can get your Ph.D. in Economics and do quite well. As I understand it, there is no postdoc stage for economics Ph.D.s, and the starting salary is much higher than professorship in physics. It is well worth investigating for undergrads and early grad students with an interest in finance.”

If you are further into your graduate school career, then Krane advises finishing the Ph.D. He says, “plan to take a postdoc job [and] at the same time, get appropriate textbooks to reeducate yourself in finance.” Krane also recommends as a resource and suggests buying some stocks and following them, to learn how financial people think and how the economy affects the market. Krane also says you should “prepare a resume and start sending it around. If you get no interest at first, don't be surprised. While doing your physics work, try to build experience in Monte Carlo, pattern recognition, C++, Java, C#, Matlab, Mathematica, Excel. Write a resume, start sending it around, and keep studying your finance books. If possible, learn about applets, coding in MS Visual Studio, and VB in Excel. In physics, these things are not usually useful, but might become more so; in finance you often need this stuff.”

For those postdocs considering a career change, “try to take jobs with responsibility over people”, says Krane, using “Run Coordinator” as an example for those in high-energy physics, he says, “because you are nominally in charge of a lot of people and equipment.” He adds, “remember, in the real world when they interview you, they will always ask how much you make now, and then offer you your salary plus some small epsilon. Be prepared to tell them why your salary is artificially low at the moment.”

Finally, Krane points out that “the prestige of your institution matters”. As a self-described “anti-snob”, Krane says he “took great pride in the meritocracy of physics, and found some Schadenfreude [damaged joy] whenever I would show up some joker from a ‘better' school than mine. The joke is certainly back on me, because my institutional choices have hurt me upon leaving physics. If you have an Ivy League pedigree, this is hugely valuable in the real world. If you can get a job or transfer to a school with more prestige than your current one, this will help you immensely when job hunting. [The] school name shouldn't be a proxy for value, especially when a resume full of success stories is right there in hand, but it is.”

Krane says that the financial job market is best in London, England with their large financial banks, followed by New York city (large banks and investment firms) and Connecticut (because of “all the hedge funds located in the vicinity” he says), with Chicago trailing as a “distant fourth…with a combination of big banks and option trading houses.” To find opportunities, Krane believes that you'll “need to find un-crowded markets or find a company that is already a leader in a market and join them.” Krane warns that “the biggest threat to physicists wanting to go into finance is that schools are now teaching people in 2 years all or nearly all the same skills physicists have but without the 6+ years of grad school and physics-specific knowledge.”

When asked about what he would have done differently, Krane says not much, “despite the length of my circular path to finance,” he adds. He says he doesn't have any regrets and that “physics… took me out of South Dakota , which for me was a very good thing. I love being a physicist on Wall St. , I love calling myself ‘Dr. Krane', and I love knowing what I know about the natural world. Nonetheless, I don't recommend that anyone else do it my way if they can help it. There are significantly easier, faster ways. Getting a Ph.D. in physics and then leaving is something of a vanity: recognize it as such.”

Krane says that he is very happy in his career, and says, “not in the sense of being happy to win second place either. I feel I have won first place. I think I'm exactly where I'm supposed to be, doing what I love to do. I'm still a physicist, though in a different place, doing the things that attracted me to physics, but I have left behind all the bad things I saw in university-based, publicly-funded science. I have friends still in physics and from their stories alone, I'm happy every day that I left. Every day. Perhaps some ugliness is to be expected in a field where the population keeps growing steadily, but the funding is not. Happily, my new field is not like that.”