Something I was thinking in terms of rating quality of MFE programs...

[IlyaKEightSix]

I was thinking...in terms of MFE programs...shouldn't it be wise to actually wonder whether or not those who are pitching the program actually are capable of making money in the markets?

Basically...

"If you don't eat your own cooking, why should we?"

Which also begs the question nine times out of ten...

If the directors of MFE programs were successful, why aren't they trading full time?

So far, the only qualifiers I can think of are Stony Brook (Frey) and Columbia (Derman)

Would this be too high a standard to hold schools to?

 

[Connor]

I think it is too high of a standard to hold programs to. Because as you said, if the professors/directors of these programs were successful wouldn't they still be doing it. Under this assumption, I think most would continue to and only a rare few would quit to go into academia.

Just because someone wasn't super successful doesn't mean that they can't share any knowledge of value. I have found that professors with a strong practical background are usually more relevant than a pure academic.

 

[IlyaKEightSix]

But really, the question is if someone knows something well enough to teach it and can't succeed, how is it expected that those who are just learning it will?

 

[DanM]

Can't this be said of most programs?

Some people might choose academia over industry because they prefer a steady income and comparatively less stress. It might not have anything to do with whether or not they can actually be successful traders.

It's a ridiculous standard to hold schools to.

 

[bigbadwolf]

Sylvain Raynes' latest essay on Quantnet argues along similar lines:

Likewise, laid back professors sipping lattes and working 9-5 M-F in some ivory-tower University are not exactly the type of creatures who can credibly talk about performance under stress. In addition, confessing one’s ignorance via some communist-style manifesto is frankly too little, too late. Someone who has never done a deal himself cannot be reasonably expected to teach others how to do deals. In fact, such people would quickly realize the futility of their classroom endeavors were they ever placed under actual deal conditions, having to get things done while attending to the countless details that form the essence of true financial analysis.

As G.B. Shaw put it a century ago, "Those who can, do; those who can't, teach."

But to return to what Raynes is saying, I suspect that many professors in the financial engineering racket (and what more appropriate word could be used?) know full well they are teaching a load of malarkey. But hey, there's money to be made in these programs. As I've said before, I know a prof who knows nothing about finance but is teaching abstract measure theory as "mathematical methods of finance." It's utterly dishonest -- but then, mustn't miss the FE gravy train.

On the flip side, you encounter "practitioners" who can't teach if their life depended on it. These idiots are stood in front of classes where they ramble incoherently.

Not easy to find a good teacher.

 

[Michelle]

Directors have a minimal teaching load, 1-2 per year if they teach at all. How would that affect the quality of a program?
A famous person is hired to attract students, raise profile of the program, marketing, etc.

 

[kwlmy]

Perhaps the right mindset to attending a FE program is to learn the principles and underpinnings of finance. Professors may not be doing the actual work but this doesn't mean their students end up building nothing in the industry. Sports coaches may not be players themselves but that doesn't mean they don't know how to produce good players and teams.

 

[IlyaKEightSix]

kwlmy, your analogy is off IMO. Why? Because coaches do the strategy stuff. The players execute. However, with finance, the strategy is the execution. The rest is a matter of having powerful enough hardware and software.

 

[alain]

the strategy is the execution

This is not really true. They might be completely different things.

 

[kwlmy]

kwlmy, your analogy is off IMO. Why? Because coaches do the strategy stuff. The players execute. However, with finance, the strategy is the execution. The rest is a matter of having powerful enough hardware and software.

All I'm saying is that you learn some things (math, financial models, etc.) in school, and other things outside of school (communicating and getting along with people, team work, understanding the business, planning, making deals, execution, etc.). There are things that are just difficult to learn in a classroom setting. Incidentally, solutions to problems in finance don't just lie in using more hardware and software (or math). Isn't this just what Sylvain Raynes' articles are trying to convey?

 

[IlyaKEightSix]

If I interpret it correctly, Sylvain Raines is talking about quants as par of deal structuring teams in M&A and the such. He was talking about aspects of deals. I'm talking about gunning models through the exchanges and vacuuming up the pennies the way the stat-arbers do.

Two different ball games.

 

[alain]

I'm talking about gunning models through the exchanges and vacuuming up the pennies the way the stat-arbers do.

I don't know if this was Dr. Derman's strength. Also, from his book and his writings, he was a research quant. I don't recall if he ever mentions trading as part of his responsibilities.

If you think about it, the job of the teacher/professor is not to show you how to make money but to make things clear for you, to enhance your understanding.

I don't think any MFE program ever advertises they are going to make you rich or they are going to show you how to extract millions from the market. That sounds more like the job of infomercials on TV. If they do, they will be lying.

The main issue is students go into these programs thinking they are going to be shown the way to riches. That is not the case, you carve your own way. You go to school to learn how the system works and to learn tools that help you understand the system, then you will be prepare to extract the most out of it. If you see a degree as such, you won't be bitching and moaning as much. But again, that's your own responsibility, not a professor or school responsibility.

 

[DanM]

I don't know if this was Dr. Derman's strength. Also, from his book and his writings, he was a research quant. I don't recall if he ever mentions trading as part of his responsibilities.

If you think about it, the job of the teacher/professor is not to show you how to money but to make things clear for you, to enhance your understanding.

I don't think any MFE program ever advertises they are going to make you rich or they are going to show you how to extract millions from the market. That sounds more like the job of infomercials on TV. If they do, they will be lying.

The main issue is students go into these programs thinking they are going to be shown the way to riches. That is not the case, you carve your own way. You go to school to learn how the system works and to learn tools that help you understand the system, then you will be prepare to extract the most out of it. If you see a degree as such, you won't be bitching and moaning as much. But again, that's your own responsibility, not a professor or school responsibility.

Excellent post. I agree 100%.

 

[sak]

Why pick out directors....why not writers of Finance books. Take the example of Duffy, he knows the sh*t better than most other practitioner in his field but I doubt he is interested in building excellent algorithms for a trading company. It is more of interest rather than choice. It is similarly true for directors as well. And don't take these directors, professors and writers for granted. There are numerous examples of them where they have suddenly discovered an interest in market and given rest of us a run for the money.

 

[IlyaKEightSix]

But why not even build such an algorithm for himself, get it to work on paper, go to the university endowment, say "hey look, I have a working strategy!" and wham. It isn't that you need a billion dollars. You can get a billion dollars on paper in a heartbeat.

Of course, your backtesting will be slightly off because you assume perfect pricing, but only by a few cents here and there.

A working strategy is a working strategy.

 

[alain]

Of course, your backtesting will be slightly off because you assume perfect pricing, but only by a few cents here and there.

A working strategy is a working strategy.

This is so OFF the mark that I don't know what to say. I have seen plenty of strategies that worked great in backtesting and when they hit real life, they got destroy.

coming with an algorithm to make money is not as simple as you put it. If not, more people will be doing it.

 

[IlyaKEightSix]

Then what was the difference? Were they just lucky with their backtesting periods?

 

[iddqd]

As G.B. Shaw put it a century ago, "Those who can, do; those who can't, teach."

"and those who can't teach, teach gym"

 

[alain]

Then what was the difference? Were they just lucky with their backtesting periods?

My point is that it is not very easy to come up with algorithms that work in real life. There are a lot of variables that come into play. Backtesting out of sample and paper trading your algorithm is not s sure thing but it's the only thing you can do before turn something on.

However, you put it too simple in your post. It is not as simple or easy.

 

[bob]

"If you don't eat your own cooking, why should we?"

Other aspects worth considering here are market and capital access. Even a great chef can't do much with a Coleman stove, a box of Ritz crackers, and a jar of peanut butter.

If your area is rates or credit, it's basically impossible for an individual investor to access even the vanilla instruments used. And no matter how wonderful your paper trades or backtests look, that doesn't mean it's easy to find someone to hand over a couple million and the prime broker access you'd need to actually implement a strategy.