The Quants: How a New Breed of Math Whizzes Conquered Wall Street and…

This book is mostly about a bunch of boneheads who happened to make a lot of money running hedge funds. I got really annoyed by the author calling these guys "geniuses". The only two guys with serious brains in this book are Ed Thorp and Jim Simons. Emanuel Derman, who is briefly discussed, is also very intelligent, with a classy personality. The rest are not worth discussing. I did like Ken Griffin's diversity. He was into everything. But his ego really makes me barf.

What I found worthwhile about this book was its description of how several quantitative hedge funds operate. My conclusion is that the quant hedge funds are, by and large, a herd of cows. All thinking the same, and acting the same. Benefiting together on the way up, and suffering together on the way down. The exception is Renaissance Technologies, and Ed Thorp, back when he was in the game.

My favorite quotes from this book:

Any good investment, sufficiently leveraged, can lead to ruin. (Ed Thorp, pg 300)

Time, and reality, had overtaken stupidity. (pg 173)

What is wrong with these people? They are so monumentally stupid. Their stupidity is killing me. (Cliff Asness, 1999, pg 170)

Contains a lot of historical information with careful explanations of the complex securities that were so much a part of our recent (and continuing) economic mess, as well as the quantitative trading strategies that also contributed so much. Mr. Patterson organizes his narrative around the people--not a bad idea, but the lack of a clear, continuous narrative caused me to struggle placing events in their proper historical context. That's too bad, because this is a danged good book, otherwise. ( )

A lot of profiles of various math types who thought that they could profit by detecting inefficiencies in the market and arbitraging them, and for a while largely did, but also were essential in generating the skewed risk-taking that brought the whole thing down. While the personal stories are interesting portraits of hubris, and I understand Nassim Taleb much better now (no wonder he’s such a jerk if this is what he was up against), the focus on personality also means that the story jumps back and forth in time and ultimately is not a coherent account of what happened, which is why I at least read these books. ( )

The one consistently recurring theme in The Quants is gambling. Ed Thorp, who according to Scott Patterson is the godfather of a quantitative based approach to investing is alos the author of the Blackjack card counting classic, Beat the Dealer and the subsequent primer on a quantitative approach to investing - Beat the Market. Scott Patterson is a staff reporter at The Wall Street Journal and in The Quants he tells the story of several different men (and a couple of women) who used their incredible quantitative skills to build some of the most powerful hedge funds of our times. The book begins (and ends) with what looks and sounds like a set piece, the Wall Street Poker Night Tournament, starring the kings of the quantitative universe - Peter Muller of PDT, Ken Griffin of Citadel Investment Group, Cliff Asness of AQR Capital Management and Boaz Weinstein of Saba. Each of these men has made hundreds of millions of dollars on Wall Street using their mathematics backgrounds and each has a fascination bordering on obsession with poker. The way the book is set up, you get the impression this story will be told through this selected cast of characters, much like how in The Big Short Michael Lewis focuses his attentions on a small group of hedge funds managers to tell the story of the financial crisis of 2007 and 2008. Unfortunately, Mr. Patterson is not quite as skillful a story teller as Mr. Lewis. I quickly lost track of the main characters, as Mr. Patterson moves the spotlight to a long list of supporting cast members. There is Ed Thorp as I already mentioned, Jim Simons of Renaissance Technologies, Aaron Brown, Paul Wilmott, Benoit Mandelbrot, Bill Gross and others who are given attention is such a way as to interfere with the flow of the narrative. Another flaw of Mr. Patterson's style is that he does not seem to maintain a consistent style - there are some chapters where all the main protagonists are covered, there are some focused on a specific person and then there are some that are descriptive of a situation without focusing on any one character. This muddled style leads to an unsatisfying reading experience. Since I'm on a roll here, let me add one more criticism - The Quants manages to give only glimpses of the mechanics of how money is made by the Citadels of the world. It does not get technical, unfortunately.

In spite of my overall disappointment with the book, I recommend reading it. It is a good introduction to the stars of the quantitative hedge fund world and at about 300 pages not irksome in length. ( )