Paul Wilmott: most quants are stupid

[daleholborow]

@Bigbadwolf I agree quants need to build a view of the world outside their screens. That's why in the Quant Careers Guide, we recommend not only a some non-math finance books, but a subscription to The Economist newspaper.

Having semi-recently received a subscription to the Economist for my birthday, I can say that this really is an excellent source of info about the world in general. I find the Economist still seem subscribe slightly/occasionally to the "we as a world can just breed our way out of the impending age-based financial crises" theory, which I disagree with, but other than that, the only downside is my slow reading speed, which means I've barely finished one before the next edition arrives!

 

[Peter Cotton]

What Paul Wilmott said in his latest interview/infomercial



Read it at The Problem with Derivatives, Quants, and Risk Management Today - Full Article - QFINANCE

I've fascinated by mathematics but must figure out what to do in the real world. I'm at something of a loss, incidentally, because I was unable to attend a recent presentation titled "What Quants Should Do" by Paul Wilmott - perhaps someone could send it to me.

http://quantapology.blogspot.com/2012/04/are-most-wilmotts-stupid.html

 

[nickaelwen]

I think people misunderstood finance as a whole in general. To me, Finance people has two types of value contributing to this world. The people who develop financial products are creating products for us to be able to transfer uncertainties as freely as we want, I call them "engineers", indeed, that's what they are just same as in other industries. The other type of people purely try to make money out of financial products,this involve predictions and largely individual biased judgements, it does not matter whether your judgement is biased or not, at the end of the day, making money is what judges you. This type of work is more of an art rather science.

In real world, let's say quant. It depends on what you want to do, you can either do the former type above or the later or somewhere in between. But to me, the former has a solid useful presence in the real world to everyone, we walks into uncertainties everyday, but only for the presence of financial products, we can choose to trade the consequences (not truely, but as a mean to compensate).

The later type of value arises from two facts, the demand of return for spare funds, and the nature of the financial products that generates opportunity profit/loss. These two brings together is our second type of people. I think this is also important, it utilize sleeping funds to get up and work, making our economy more efficient.

But there should be a limit of how much these products totally should be as a proportion of the true underlying economy, in order for our economy to grow stably. You can't having a world that has one unit of money in the real underlying industry and 10 unit of money trading it in options,right? It looks wasting of time and funds and totally gambling. So there definitely should be a limited guide lines.

Now what do you think guys?

 

[Freakonometrics]

Having semi-recently received a subscription to the Economist for my birthday, I can say that this really is an excellent source of info about the world in general. I find the Economist still seem subscribe slightly/occasionally to the "we as a world can just breed our way out of the impending age-based financial crises" theory, which I disagree with, but other than that, the only downside is my slow reading speed, which means I've barely finished one before the next edition arrives!

I didn't really like The Economist. Rather than taking an objective view of events nearly every single one of their articles are critical reviews and what "sucked" about it, without offering reasonable solutions.

OT:
I can see where he's coming from. I've recently read the book of LTCM, and the conclusion from the story is that while brilliant quantitative strategies work as long as the world acts like how you modeled your strategies, it does put you at a danger if the world takes an irrational turn. What happened in the LTCM story is a series of events which would be deemed neigh on impossible in a statistical world, but is very plausible taking human views. It was a kind of irrational bubble fed by human fear and world economic problems, catalysed by rogue traders who saw a bleeding animal.

 

[martingaletrader]

"If most quants are stupid and most quants are Asian does that mean Asians are stupid" So what is Paul is trying to say here.

 

[ericlans]

Can anyone explain me why then to get MFE that many universities offer. I think this whole industry is a scam.

 

[ericlans]

It is a chaos, you do not know who is right and who is wrong. My suggestion is get a degree in some other field and live happy.

 

[sgmfof]

seems like the situation of actuarial science a few years back, was really good career for freshies with high salary no work experience needed, just pass the exams, then suddenly schools start to mushroom and recruit so many students, international students also flooding the programs, and in the end the whole market is saturated with fresh grads struggling finding an internship or working in other fields like IT, and then people start to bad mouth the profession and tell horrible stories on forums

 

[bigbadwolf]

Can anyone explain me why then to get MFE that many universities offer. I think this whole industry is a scam.

There is now a glut: capitalism tends to produce gluts. Someone here -- Ken Abbott, was it? -- recently pointed out that there were only a handful of schools a decade back and those who graduated had no problem lining up jobs. But then more and more schools started to get on the bandwagon as it was (and remains) a cash cow. And it was easy to set them up: hire some people (er, "adjunct faculty") literally off the street and voila! -- you've got a "program." I started the thread, "Second-Rate MFE Programs and Worse" on this forum maybe four years ago. Since then the imbalance between supply and demand has only got worse. If you are going in for this, avoid second-rate programs like the plague: it's hard enough getting a job from a first-rate program. The situation now is probably analogous to that existing in law: if you've got a degree from a second- or third-tier program, you haven't a chance in the US.

 

[ericlans]

sgmfof Look, on one hand, universities are advertising about their MFE programs with big promises and on the other hand, people write articles about uselessness of the MFE programs that are being offered.

 

[JDawg]

To elaborate on what bigbagwolf said: besides the oversupply of MFEs, there is also reduced demand for employees in the financial sector ever since the financial crisis. A 30 year old banker wrote a blog about it here. Despite the fact that he's a banker, it's still relevant to the quant world.

The last 30 years for financial services have been an incredible bull run on an unprecedented scale that saw financial services’ share of S&P 500 corporate earnings rise from 7% to 40%.

What we are witnessing is a reversion to the mean on a grand scale of returns on capital – human and financial – invested in the financial services sector. In 2008-2009, we believed that the crisis was just a bump and soon it will be business as usual. I am convinced it signaled the beginning of a secular downturn.

Over the next 5-10 years, size, scale, headcount, and ultimately compensation will fall drastically — by another mentor’s estimate, up to 80%.

 

[psuhoops]

Here's my take: Demand for bespoke derivative products will continue to decline as the demand for transparency from the banks increases along with liquidity demands from investors will reduce demand for MFEs in this area. Hedge funds and some prop trading areas already hire Undergrad Comp Sci majors to do programming tasks much cheaper than an MFE; the cost savings vs hiring an MFE with no market experience should ensure this continues. Research into areas such as fractals and development of new models that better describe the market seem to be very limited; the continuing "refurbishing" of flawed stochastic models and emphasis on theory vs practical as many mentioned above results in the need for the MFE grad with no experience to learn how the market and finance actually works.

The above sound very negative; for those with no experience in the market and little or no understanding of finance and/or economics I believe getting an MFE is not a great decision. I would recommend first getting a job in finance; both to see whether you actually like the subject and to learn the basics. After working for a few years, with a realistic idea of what may be possible future positions, then a MFE may be an option; however, a CFA or MBA might be a better choice as well.

 

[Ken Abbott]

Here's my take: Demand for bespoke derivative products will continue to decline as the demand for transparency from the banks increases along with liquidity demands from investors will reduce demand for MFEs in this area. Hedge funds and some prop trading areas already hire Undergrad Comp Sci majors to do programming tasks much cheaper than an MFE; the cost savings vs hiring an MFE with no market experience should ensure this continues. Research into areas such as fractals and development of new models that better describe the market seem to be very limited; the continuing "refurbishing" of flawed stochastic models and emphasis on theory vs practical as many mentioned above results in the need for the MFE grad with no experience to learn how the market and finance actually works.

The above sound very negative; for those with no experience in the market and little or no understanding of finance and/or economics I believe getting an MFE is not a great decision. I would recommend first getting a job in finance; both to see whether you actually like the subject and to learn the basics. After working for a few years, with a realistic idea of what may be possible future positions, then a MFE may be an option; however, a CFA or MBA might be a better choice as well.

Another (somewhat more sanguine) thought. There is job growth in finance, even job growth in areas requiring some quant finance, but not in trading and structuring. The growth is in model review, audit, and regulatory control. I've been doing a lot of research in preparation for a seminar I'm teaching on financial regulation and I'm staggered by the scope of the laws that have just been passed. There's an incredible amount of work to be done and not enough people that know how to do it. Want a job at a BB? Skip the algorithmic trading course and take intermediate accounting. Bag the 3rd C++ course in favor of a risk management course. Study Basel. Read about Dodd-Frank. Understand the split of the FSA into the PRA and FCA.

 

[ericlans]

Poor students spend all their money, time and effort and come out empty handed.
This is ridicules. Only very recently students in differernt universities start realizing what is going on (specially the asians) and inform others about the situation by sharing their concerns.

 

[purplyboy]

Mr. Abott, it sounds like your recommending us to become compliance accountants instead? How about Sarbanes Oxley too?

 

[purplyboy]

I think if you watch this video, you'll get an idea of what Wilmott thinks of Quants.
Jump to 32:18

 

[Ken Abbott]

Mr. Abott, it sounds like your recommending us to become compliance accountants instead? How about Sarbanes Oxley too?

Only if you want a job.

 

[Barny]

Ken - I fail to see the relation between quant work and what you're suggesting. It doesn't sound remotely quantitative to me. As a poster above said, why wouldn't banks just hire a load of ACA/ACCA qualified accountants to do the job you're suggesting - since it sounds exactly like accountancy?

 

[Ken Abbott]

Read the Basel rules. Read Dodd-Frank. The are lots of models being built. Among them:
Op Risk AMA: an actuarial approach to ops losses
Credit Risk IMM: requires modeling of default probabilities and losses given default
Market Risk IRC: requires a comples single-factor Vasicek
Market Risk VaR: lots of stuff going on here wrt time-varying risk, exponential smoothing

This is barely scratching the surface. Plus, once these models are written, they have to be documented, validated and then reviewed and approved by audit.
My risk group has never been busier.

If you went into quant finance to do quant trading - well, good luck with that. For BBs, those days are gone. Maybe there are jobs at HFs. I'm sure the are bucket shops that will take your money to let you trade. If you find the industry fascinating, there are plenty of quant jobs to be had. They may not be as glamorous as you'd like them to be, but they're engaging.

 

[Ken Abbott]

www.bis.org/publ/bcbs116.pdf
www.bis.org/publ/bcbs196.pdf
www.math.kth.se/matstat/seminarier/reports/M-exjobb12/120308.pdf