Financial Rigor

ByHeather

One of the things you learn in engineering is to be rigorous. If you build a bridge that falls down on a windy day, there’s going to be hell to pay. Financial markets are not like that; they are very noisy. It’s hard to tell who’s skillful and who’s just lucky. And a lot of analyses are done in extremely haphazard, primitive ways, but the investing public doesn’t know any better.

— Dan diBartolomeo, From the Feb 23, 2009 issue ofWired.

Dan diBartolomeo is the head of Northfield Information Services, a Boston financial analysis firm. He has a long history of analyzing investment strategies and complex securities. His comparison of financial markets to the rigors of engineering is noteworthy.

The “quants” of Wall Street, with their Ph.D.’s in advanced science and mathematics, have been painted in the press as geniuses who created financial products of such astounding complexity that mere mortals could not hope to comprehend them. I can’t help but wonder if they weren’t more akin to wizards and alchemists who used their formulas and models as a screen for the ultimate confidence game.

People who are smart look ahead to anticipate the implications of their actions. People who are smart create holistic systems rather than piecemeal schemes. People who are smart apply rigor and discipline to their ideas. It seems to me that the quants of Wall Street were more like pawns in a sea of opportunists than true geniuses.

Similar Posts

  • What’s wrong with online advertising

    ByHeather

    When the news broke today that a crane had fallen in New York City I immediately went to the web in search of video footage. CNN was my first stop. As expected, they had a video clip at the top of the page.

    The next two minutes were a stunning realization of all that is wrong with the current attempts to monetize online video. The clip was 75 seconds long. In order to watch the clip I had to endure a 30 second pre-roll advertisement . . . for VIAGRA! …

  • Man on Wire

    ByHeather

    When I see three oranges, I juggle; when I see two towers, I walk.

    — Philippe Petit

    I watched the wonderful documentary Man on Wire last night. It is the inspiring story of Philippe Petit and his lifelong passion to walk a tightrope between the twin towers of the World Trade Center. His dream began even before the towers were built and culminated in a 45 minute walk in the sky on August 7, 1974. The film is especially bittersweet with all of the behind-the-scenes details of the twin towers, knowing their ultimate fate.

    Philippe’s quote above was in response to the incessant pleas by the press for an answer to “Why?” There is no why, he insisted. When he sees oranges, he juggles. When he sees two towers, he walks.

  • “The Market” vs “The Economy”

    ByHeather

    With all the volatility in the stock market lately it is a good time to remind ourselves that “the market” is not the same as “the economy.” The best that I can tell — at least as of the last few years — “the market” has contracted to a relatively small group of:

    • professional traders
    • automated computer programs
    • institutional investors
    • hedge fund managers

    This tight-knit circle trades amongst itself with very little relevance to what we think of as “the economy.” In contrast to this closed group, the economy is the vast sum of the creation and delivery of the goods and services we want and need.

    It seems to me that the Dow Jones Industrial Average and S&P 500 bears little connection to these things these days.

    Don’t be afraid. Now is the time to be bold. If you don’t like the economy, let’s go out and make one of our own.

  • Just Be

    ByHeather

    Sometimes the best thing we can do is to stop “doing” and just be. You don’t have to “be” anything. We don’t have to “be” quiet, or productive, or useful, or nice. Just be.

    In his brilliant album that gave music and lyrics to Richard Bach’s Jonathan Livingston Seagull, Neil Diamond wrote:

    Be, as a page that aches for a word that speaks on a theme that is timeless.

  • Life’s Mission

    ByHeather

    Here is a test to find out whether your mission on earth is finished; if you’re alive, it isn’t.

    — Richard Bach, Illusions: The Adventures of a Reluctant Messiah

    I came to Richard Bach via Neil Diamond’s soundtrack to Jonathan Livingston Seagull. While the metaphors in Jonathan Livingston Seagull are rather obvious now, the wisdom and insights from Illusions remain much more subtle and lasting.

    Richard Bach was quite popular in the late 70’s and 80’s. Amazon calls him the Kahil Gibran of the Me! generation. I was in my twenties at the time and, like most people in that decade of their life, I had an overwhelming sense of calling. I had a deep sense that I was placed on this earth to complete a mission, to help people see themselves, and the world, in a fresh way.

    Much has transpired since those heady days of youth. I think I have helped many people along the way, albeit never in the grand style I envisioned in my twenties. Nevertheless, on a quite day, I can still hear that voice calling inside. Since I am very much alive again today, it is good to know that my mission is not yet complete.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.