: Quants, the: how a new breed of math whizzes conquered wall street and nearly destroyed it (9780307453372) : Scott Patterson : Books
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Quants, The: How A New Breed Of Math Whizzes Conquered Wall Street And Nearly Destroyed It

by Scott Patterson
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Product Details

  • Publisher: Crown Business
  • Publishing date: 02/02/2010
  • Language: English
  • ISBN-13: 9780307453372
  • ISBN: 0307453375


“Beware of geeks bearing formulas.”
--Warren Buffett
In March of 2006, the world’s richest men sipped champagne in an opulent New York hotel.  They were preparing to compete in a poker tournament with million-dollar stakes, but those numbers meant nothing to them.  They were accustomed to risking billions.  
At the card table that night was Peter Muller, an eccentric, whip-smart whiz kid who’d studied theoretical mathematics at Princeton and now managed a fabulously successful hedge fund called PDT…when he wasn’t playing his keyboard for morning commuters on the New York subway.  With him was Ken Griffin, who as an undergraduate trading convertible bonds out of his Harvard dorm room had outsmarted the Wall Street pros and made money in one of the worst bear markets of all time.  Now he was the tough-as-nails head of Citadel Investment Group, one of the most powerful money machines on earth. There too were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR, a man as famous for his computer-smashing rages as for his brilliance, and Boaz Weinstein, chess life-master and king of the credit default swap, who while juggling $30 billion worth of positions for Deutsche Bank found time for frequent visits to Las Vegas with the famed MIT card-counting team.  
On that night in 2006, these four men and their cohorts were the new kings of Wall Street.  Muller, Griffin, Asness, and Weinstein were among the best and brightest of a  new breed, the quants.  Over the prior twenty years, this species of math whiz --technocrats who make billions not with gut calls or fundamental analysis but with formulas and high-speed computers-- had usurped the testosterone-fueled, kill-or-be-killed risk-takers who’d long been the alpha males the world’s largest casino.  The quants believed that a dizzying, indecipherable-to-mere-mortals cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets.  And they helped create a digitized money-trading machine that could shift billions around the globe with the click of a mouse.  
Few realized that night, though, that in creating this unprecedented machine, men like Muller, Griffin, Asness and Weinstein had sowed the seeds for history’s greatest financial disaster.  
Drawing on unprecedented access to these four number-crunching titans, The Quants tells the inside story of what they thought and felt in the days and weeks when they helplessly watched much of their net worth vaporize – and wondered just how their mind-bending formulas and genius-level IQ’s had led them so wrong, so fast.  Had their years of success been dumb luck, fool’s gold, a good run that could come to an end on any given day?  What if The Truth they sought -- the secret of the markets -- wasn’t knowable? Worse, what if there wasn’t any Truth?
In The Quants, Scott Patterson tells the story not just of these men, but of Jim Simons, the reclusive founder of the most successful hedge fund in history; Aaron Brown, the quant who used his math skills to humiliate Wall Street’s old guard at their trademark game of Liar’s Poker, and years later found himself with a front-row seat to the rapid emergence of mortgage-backed securities; and gadflies and dissenters such as Paul Wilmott, Nassim Taleb, and Benoit Mandelbrot.  
With the immediacy of today’s NASDAQ close and the timeless power of a Greek tragedy, The Quants is at once a masterpiece of explanatory journalism, a gripping tale of ambition and hubris…and an ominous warning about Wall Street’s future.

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  • The book is wrong and sensational
    From Amazon

    The book is wrong and sensational. A small fraction of "quants" work on proprietary trading and an even smaller number work on the kind described in this book. Of that fraction, a small number blew up spectacularly as described in this book. Most proprietary trading operations make money. The money lost is a small, small, small, fraction of that lost by lenders stuffing borrowers with bad mortgages and bankers stuffing investors with the same bad mortgages. Finally, the mortgage debacle is only one of several problems that contributed to the financial meltdown. The book is food for the stupid and prejudice who will use this to blame "quants' for our problems.

  • Well, Screw You Too.
    From Amazon

    I would have very likely purchased this to read, but will now pass since the kindle edition is more expensive than the actual physical edition. This makes no sense at all. No paper to process, print or bind. No heavy books to ship. The publishers need to join the 21st. century and embrace the new medium. The ebook (which ever format becomes the industry standard) is not the demise of publishing, but its salvation.

  • $14.58 for Kindle edition? Pass...
    From Amazon

    I bought my Kindle to read books at $9.99. At some point purchasing books at that price would offset the initial purchase of a piece of hardware with a finite life expectancy. The fact that this book is nearly $15 is a disappointment considering that I've had it on my Kindle wish list for some time. I'll be removing that now and waiting for this book to be available from the library.

  • The Seductive Power of Math
    From Amazon

    The author is a staff reporter for The Wall Street Journal, and it's clear that he has done a good deal of research for this book, which describes the history and the (sometimes colorful) characters behind the growth of quantitative methods in hedge funds and throughout Wall Street. The book begins and ends with the Wall Street Poker Night Tournament at the St. Regis Hotel in Manhattan--specifically, the tournaments of 2006 and 2009, where many quants would seek to strut their IQs. (Have you ever noticed that Wall Street quants seem to love poker, while fundamentally-oriented investors like Warren Buffett seem to prefer bridge? One possible reason is that compared to bridge, poker is much more easily characterized by math--specifically, math that computers and sharp people can master.) A lot happened between 2006 and 2009, of course, but before the author spends much time discussing all of the market turmoil of the last few years (and the role quantitative investing had), he spends perhaps half the book discussing the relevant background of quant methods, which dates back to the 1960s, 1950s, or 100 years ago, depending on how you look at things. Digesting this history, the reader will likely conclude that big events (in numerous disciplines) seldom come out of nowhere--they develop over a long time, and once a catalyst occurs, they can present themselves with full force. And so it is with quantitative investing. So it is entirely appropriate that author Patterson devote the time necessary to present this important background. Well before the trading turmoil of 2007 - 09, there was the one-day market crash of 1987, which was caused in part by a disastrous overuse of "portfolio insurance." Patterson describes how many of the academics who promoted portfolio insurance didn't realize how transactions in derivative markets, such as stock index futures, could essentially flow into the cash markets--where most investors see them. This general problem would grow greatly in the 2007 - 09 experience, so it is important to review the 1987 episode. It doesn't take the reader much insight to generalize that one of the fatal flaws of the quants was that while math can be useful to help researchers understand some of the complexities of the economic world, economic reality is not a purely deterministic endeavor--and, especially when people act in unusual ways (typically during times of extreme stress), seemingly regular market patterns aren't quite so regular. Indeed, some quants, such as Benoit Mandelbrot (discussed in the book) saw the limits to some of the quants' simplifying assumptions. That's another key point: Simplifying assumptions are just that--assumptions. People, whether they be Joe Six-pack or the head of the Fed, reserve the right to change their behavior. The fact that they don't do so frequently is what makes math models seem to work, and the fact that sometimes people do change behavior (perhaps from that suggested by raw logic to that described more by behavioral finance) makes the use of models more art than what many of the quants ever believed. Quants may assume that they don't really need to know much about "business fundamentals," because these fundamentals are already reflected in market prices. And often they are. But not always, which is why a non-quant like Warren Buffett can be so successful. So, go ahead and read the book if you want to know more about the rich and interesting history of quant theory, with plenty of spice in the form of descriptions about some of the more colorful players. The seduction of math can be that it is sufficient to see through the complexity of the modern world into the depths of economic reality. The disruptive truth is that, while math certainly has its place, without a good understanding of the limits of math, you can go wrong. Very wrong.

  • Compelling story
    From Amazon

    This book is very entertaining and enlightening about the reclusive world of Wall Street finance. I was surprised that the story was both accessible as well as illuminating. Great read!

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