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  • Book Review: 'The Quants' by Scott Patterson  0 comments
    Feb 24, 2011 6:21 PM
    The Quants is one of the rare books that not only did I finish, but upon reaching the last page, I wanted to keep going. I first learned about The Quants in an advertisement in the Wall Street Journal and thought to myself, “Wow, I would like to read this one”. I am glad I did. In all fairness, this book had me at “hello”, as I have a fascination with the subject matter. With 13 monitors in my office and a bank of scanning computers in my basement, I think it is safe to say I have some “quant wannabe” in me.
    In The Quants, Patterson investigates the essence of complicated interrelationships between the major players that ultimately became the center of the banking and financial crisis. The reader is given a highly informative walk through of history and how Beat the Dealer by Ed Thorp was the first step in using mathematical models to “beat the system”. Beat the Dealer was followed by Beat the Market which provided the reader with the starting point of the mathematical arms race that eventually ended up going nuclear on financial systems across most of the globe.
    Patterson seamlessly journey through the book, describing in detail many of the players like Goldman Sachs, Morgan Stanley, Citadel, Lehman Brothers, and others that moved around billions of dollars in any given day with simply a keystroke. While reading the book it is easy to get lost in all the money and to start to get an attitude that a few million dollars doesn’t mean much; that is, until you put the book down and once again enter back with the rest of the world. The wonderful thing is that Patterson takes you there and does it in such a way that is dangerous to your sleep if you start reading at night. It is fascinating and capturing, so that more than once, I found myself looking at the clock thinking, “I really need to go to sleep, but just one more chapter before I do.”
    With each success by the various quant teams working at the various firms, the reader is given an inside view of the rise in money, prestige, and power that comes with being able to exploit the markets. Private jets, million dollar poker games, vacations and celebrations all came to those that could “crack the code” and the reader is right there for each key moment. The celebrations become grander and the egos begin to match the altitudes of the private jets carrying them. All the while the champagne is flowing and the math whizzes are high-fiving each other, cracks begin to emerge that only experienced traders can know or take action from. Enter Nicholas Taleb, and how Patterson describes the warnings from “Mr. Black Swan”, and Ed Thorp, who pulls away from deploying capital in what becomes increasingly a fool’s game of accepting greater amounts of risk in seek of higher yields. 
    Well, we all know how this ends, but not from the vantage point of those that watched their great empires evaporate right in front of their eyes with red down bar after red down bar. If you have any interest at all in the sub-prime mess or the economic bubble burst, get a copy of The Quants. It is a great read and I strongly recommend it.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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