Are Quants Taking Over the World?

There has been quite a bit of discussion recently on the forum concerning whether or not quant is taking over traditional finance. An example includes inevitably increasing quantitative strategies with higher computer power. One suggested that the CFA program lacks the req’d basic maths calculus, probability, numerical methods, etc. and a portfolio manager who doesn’t understand certain nuances of derivatives (from a quant perspective) will eventually be shown the door. What do you guys think? Is the perceived value of the CFA designation deteriorating in the market in favour of “quants”? Will 90% of PMs of the future be — quants?

not sure if quants are taking over the world yet, but consider that more of the world is becoming computerized - by the time it takes you to click a button to buy (not mentioning the analysis part), you can have computers make hundreds or thousands of trades if you wanted i apologize in advance and am not trying to be offensive (you can flame me, but it won’t make my statement less true), but people (speaking in terms of generalities and groups, not individuals) who can excel at graduate level quant subjects tend to be smarter than people who get MBAs and it’s not even close. anecdotally, i know many who have left math, physics, computer science, and engineering majors to go to easier majors like business, economics, political science, and finance because they just couldn’t deal with the difficulty of the former set of subjects. it’s these people who have been making money for a long time, and now the people in the technical fields are getting interested - how can it not be true that money goes to the people who hold more of the brainpower? all this said, i’m only speaking in terms of generalities - i’m sure there are plenty of non-technical MBA-types who are much smarter than quants in the world, especially where the competition is the heaviest, but probably not for the vast majority of your typical finance jobs.

Never - very few have the necessary communication and interpersonal skills. I am an Ivy League MBA and there is a reason why organizations will be run by business school graduates for a very long time, and quants will never be a replacement.

“how can it not be true that money goes to the people who hold more of the brainpower?” This is completely wrong. Honestly, do you think Warren Buffett is the smartest guy on Wall Street? I’m pretty sure he doesn’t do calculus. There are many elements to making money besides brainpower, and the history of Wall Street is full of really smart guys who blew themselves up (how many Nobel prizes did they have at Long Term Capital, for example?). It’s also full of only modestly smart guys who had discipline, worked hard, had a little bit of luck, and made lots of money. Part of the problem really smart people have when they come to Wall Street is the very idea that because they’re smarter they’ve absolutely got to succeed - and then they end up doing stupid things. The market is not an IQ test, it’s much more subtle than that.

WhitecollarRedneck Wrote: ------------------------------------------------------- > “how can it not be true that money goes to the > people who hold more of the brainpower?” > > This is completely wrong. Honestly, do you think > Warren Buffett is the smartest guy on Wall Street? > I’m pretty sure he doesn’t do calculus. There are > many elements to making money besides brainpower, > and the history of Wall Street is full of really > smart guys who blew themselves up (how many Nobel > prizes did they have at Long Term Capital, for > example?). It’s also full of only modestly smart > guys who had discipline, worked hard, had a little > bit of luck, and made lots of money. Part of the > problem really smart people have when they come to > Wall Street is the very idea that because they’re > smarter they’ve absolutely got to succeed - and > then they end up doing stupid things. The market > is not an IQ test, it’s much more subtle than > that. Agreed.

Like I said, at the top levels, where the competition is the heaviest and the stakes are the highest - it doesn’t matter if you’re a quant or an MBA (or even if you have any degree) since these guys are going to be the most brilliant and have the right set of skills. However, for normal finance jobs (those that don’t pay billions or millions), I think it’s going to be a lot tougher when things become more contingent on dealing with information.

JOE2010 Wrote: ------------------------------------------------------- > Never - very few have the necessary communication > and interpersonal skills. > > I am an Ivy League MBA and there is a reason why > organizations will be run by business school > graduates for a very long time, and quants will > never be a replacement. And these Ivy League MBAs at the top will say things like: “We were seeing things that were 25-standard deviation moves, several days in a row. There have been issues in some of the other quantitative spaces. But nothing like what we saw last week.” - David Viniar, Goldman CFO, Harvard MBA

WhitecollarRedneck Wrote: ------------------------------------------------------- > “how can it not be true that money goes to the > people who hold more of the brainpower?” > > This is completely wrong. Honestly, do you think > Warren Buffett is the smartest guy on Wall Street? > I’m pretty sure he doesn’t do calculus. There are > many elements to making money besides brainpower, > and the history of Wall Street is full of really > smart guys who blew themselves up (how many Nobel > prizes did they have at Long Term Capital, for > example?). It’s also full of only modestly smart > guys who had discipline, worked hard, had a little > bit of luck, and made lots of money. Part of the > problem really smart people have when they come to > Wall Street is the very idea that because they’re > smarter they’ve absolutely got to succeed - and > then they end up doing stupid things. The market > is not an IQ test, it’s much more subtle than > that. I am not speaking in terms of one or two people (who are billionaires and the best of the best) when I said these things, I’m speaking in terms of groups of people. Take 1,000 people with graduate-level quantitative skills (who can pick up MBA soft skills if the money’s right) and take 1,000 MBAs (who probably couldn’t pick up the quant skills) - which group do you think will fare better in the coming age of accelerating informational and technological advancements?

sublimity Wrote: ------------------------------------------------------- > Take 1,000 people with graduate-level quantitative > skills (who can pick up MBA soft skills if the > money’s right) and take 1,000 MBAs (who probably > couldn’t pick up the quant skills) - which group > do you think will fare better in the coming age of > accelerating informational and technological > advancements? Great posts guys. Re: above. One could also make the argument that a bright person could learn quant skills, as they are just that, learned skills. However, communication ability stems more from emotional intelligence. That is, it could be perceived as more of an innate ability than a learned skill. With that said, I am certainly not disagreeing that there are bonehead Ivy League MBAs out there because there are plenty of them. Sure some of them are handed their life on a silver platter. But some (and generally more commonly than quants) have incredible emotional intelligence which allows them to excel. So what will be more valued - incredibly high proficiency in stochastic calculus or the ability to make people like you.

bhill020 Wrote: ------------------------------------------------------- > So what will be more valued - incredibly high > proficiency in stochastic calculus or the ability > to make people like you. Ideally, both!

Anyways, I’m sure that the best people can transcend their backgrounds, degrees, and learn what’s needed to be successful in any environment. In the end, success for an individual is definitely more a function of their motivation/passion than “quant or not” since these people will do whatever it takes to succeed. However, trends seems to indicate exponentially increasing informational quantity and complexity in the markets - and whoever can deal with processing this will be the ultimate winners in the coming years. This is the reason for my thoughts in the first post of this thread.

bhill020 Wrote: ------------------------------------------------------- > One could also make > the argument that a bright person could learn > quant skills, as they are just that, learned > skills. However, communication ability stems more > from emotional intelligence. That is, it could be > perceived as more of an innate ability than a > learned skill. At first I was about to agree with you, but I will have to disagree about quant skills being purely learned, especially to the high degree required of quant jobs. This is in the same way that, though emotional intelligence can be cultivated with mindful intent and even coaching, it can’t be brought to a high degree compared to someone who naturally has it. I’ve maxed out all math sections in all standardized tests (SAT, GRE, GMAT, etc.) I’ve taken in my life, and I still feel stupid and totally inadequate when dealing with math in physical sciences and quantitative finance.

sublimity Wrote: ------------------------------------------------------- > JOE2010 Wrote: > -------------------------------------------------- > ----- > > Never - very few have the necessary > communication > > and interpersonal skills. > > > > I am an Ivy League MBA and there is a reason > why > > organizations will be run by business school > > graduates for a very long time, and quants will > > never be a replacement. > > And these Ivy League MBAs at the top will say > things like: > > “We were seeing things that were 25-standard > deviation moves, several days in a row. There > have been issues in some of the other quantitative > spaces. But nothing like what we saw last week.” > - David Viniar, Goldman CFO, Harvard MBA ivy league MBAs is such a misnomer. how can u say the average Cornell MBA, all else equal, is smarter than a Kellogg MBA?

One thing I can say for sure is that: JOE2010 is DUMP.

No…honestly would you want to invest with some guy with a black box model, that has a history of 7 years?

There are clearly many dimensions of intelligence, and mathematical ability is just one of them. I think what quantitatively oriented people have that is valuable and seems to be indicative of other aspects of intelligence is a disciplined way to break down and approach problems to make them manageable. If they can do it with math, they can probably do it with other things. Now, there are people who can do this and aren’t very successful with quantitative stuff, but it takes a lot more work to figure that out with non-quantitative types. There are certain types of issues that do not lend themselves well to reductionism. These are typically complex interacting systems which typically get too complex and chaotic (in the “deterministic chaos” sense) to describe completely (or even mostly completely) with standard quantitative tools. Human emotions and interactions also fit into this category. What’s required here is a logical and systematic way to understand tendencies, “moods,” and behavior, even if it isn’t rulebound in a quantitative way. Interestingly, those who are good at the quantitative side of things, are often not so strong at getting at the systematic interacting components, although there are a select few that seem to be good at both.

Quants are overrated. Its not that their dumb – the problem is that the real world does not fit easily into a mathematical model. Quants were pricing CDSs and securitized assets – and they couldn’t have been more wrong. And for God’s sake, look at LTCM. You have a bunch of brilliant math people who make poor common sense decisions.

The winners in the future will be those who can blend quant and traditional finance. Not scientists who do not understand traditional finance but are especially good at solving PDEs…or the social science major who took the CFA and is now an analyst. The CFA has opened up the coffers of learning traditional finance which was reserved for top B-Schools previously. Programs such as the CQF are opening the seemingly obscure arena of quant finance. Quanty folks can pick up soft skills; as long as their culture does not interfere with this. It can be more difficult for an individual who has spent their whole life reclusive to now become an extrovert in an North American fashion. Business folks can pick up math skills with proper guidance; their are tons of online tutorials and courses; all is required is committment, interest, and lack of fear.

BTW --> many of the smartest people in the room historically got there due to lack of transparency, insider trader and boys club rituals…

I think the truth is somewhere between the ideas of my best friend sublimity and the other ideas on this thread. In any case further clarifications must be made: - taking over what ? M&A ? Equity research ? Hedge Funds ? Private equity ? …? They’re all very different fields. While quants are very relevant for trading and equity research, they are much less important for M&A for example. - Then within quant-intensive fields like derivatives trading, I doubt that the guy who develops the model for some arbitrage hedge fund will be the same guy who goes out in the world to raise funds. I think the following generalisation can be made: - Quant-intensive jobs (pretty much anything that involves time-series, stats, mathematical models…) will be less and less available to people that are not engineers, Phds in math, statisticians, etc. But these jobs cover just a portion of a portion of the financial world. Even in hedge funds, I doubt that we will see an increasing number of general partner that are stats Phds. Why ? Because spending your day in front of statistical softwares usually doesn’t make one develop the skills necessary to go raise hundreds of millions of commitments. It’s all about specialisation. A successful fund/bank division is a set of people who are all the best at different things. Bottom line is that many different things are involved in finance.