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The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It Paperback – January 25, 2011
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In March of 2006, four of the world’s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with million-dollar stakes, but those numbers meant nothing to them. They were accustomed to risking billions.
On that night, these four men and their cohorts were the new kings of Wall Street. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the prior twenty years, this species of math whiz--technocrats who make billions not with gut calls or fundamental analysis but with formulas and high-speed computers--had usurped the testosterone-fueled, kill-or-be-killed risk-takers who’d long been the alpha males the world’s largest casino. The quants helped create a digitized money-trading machine that could shift billions around the globe with the click of a mouse. Few realized, though, that in creating this unprecedented machine, men like Muller, Griffin, Asness and Weinstein had sowed the seeds for history’s greatest financial disaster.
Drawing on unprecedented access to these four number-crunching titans, The Quants tells the inside story of what they thought and felt in the days and weeks when they helplessly watched much of their net worth vaporize--and wondered just how their mind-bending formulas and genius-level IQ’s had led them so wrong, so fast.
- Print length352 pages
- LanguageEnglish
- PublisherCrown Currency
- Publication dateJanuary 25, 2011
- Dimensions5.21 x 0.78 x 7.91 inches
- ISBN-100307453383
- ISBN-13978-0307453389
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Editorial Reviews
Review
“Fascinating and deeply disturbing…Patterson gives faces and personalities to the quants, making their saga accessible and intriguing…[he’s] onto a big story that begs follow-up.” --New York Times
“Valuable…makes [the quants’] secretive world comprehensible…the story radiates with hubris, high stakes and expensive toys.” --Bloomberg.com
“A riveting account…there are many dramatic moments and a good dose of schadenfreude in Scott Patterson’s THE QUANTS.” --Financial Times
“Read this book if you want to understand how the collapse of the global financial system was at its core a failure of modern financial theory and its most ardent disciples. Patterson is able to gracefully explain the complex ideas underpinning our financial system through an extraordinarily engaging and insightful story.” --Mark Zandi, Chief Economist of Moody’s Economy.com and author of Financial Shock
"Enlightening and enjoyable...Patterson masterfully recounts how brilliant mathematicians and technologists ignored the human element...If you're serious about understanding the financial meltdown, you need to read this book." --David Vise, Pulitzer Prize Winner, author of The Google Story, and Senior Advisor, New Mountain Capital
"A compelling tale of greed and conceit, The Quants tells the inside story of the Wall Street rocket scientists who could couldn’t resist playing with numbers and nearly blew themselves up.” --Michael J. Panzner, author of Financial Armageddon and When Giants Fail
"The Quants will keep hedge fund managers on the edge of their Aeron chairs, while the rest of us read in horror about their greed and their impact on the wider economy. A gripping tale right until the last page...but I fear this is perhaps not yet the end of the story." --Paul Wilmott, Oxford Ph.D., founding partner of Caissa Capital, and author of Paul Wilmott Introduces Quantitative Finance
“A character-rich tale of how quirky geniuses cut their teeth on gambling, then moved on to the biggest casino of all, Wall Street. From blackjack to black swans, The Quants tells how we got where we are today.” --William Poundstone, author of Fortune’s Formula
About the Author
Excerpt. © Reprinted by permission. All rights reserved.
Peter Muller stepped into the posh Versailles Room of the century old St. Regis Hotel in midtown Manhattan and took in the glittering scene in a glance.
It wasn’t the trio of cut-glass chandeliers hung from a gilt-laden ceiling that caught his attention, nor the pair of antique floor-to-ceiling mirrors to his left, nor the guests’ svelte Armani suits and gemstudded dresses. Something else in the air made him smile: the smell of money. And the sweet perfume of something he loved even more: pure, unbridled testosterone-fueled competition. It was intoxicating, and it was all around him, from the rich fizz of a fresh bottle of champagne popping open to the knowing nods and winks of his friends as he moved into a room that was a virtual murderer’s row of topflight bankers and hedge fund managers, the richest in the world. His people.
It was March 8, 2006, and the Wall Street Poker Night Tournament was about to begin. More than a hundred well- heeled players milled about the room, elite traders and buttoned-down dealmakers by day, gambling enthusiasts by night. The small, private affair was a gathering of a select group of wealthy and brilliant individuals who had, through
sheer brainpower and a healthy dose of daring, become the new tycoons of Wall Street. This high-finance haut monde—perhaps Muller most of all—was so secretive that few people outside the room had ever heard their names. And yet, behind the scenes, their decisions controlled the ebb and flow of billions of dollars coursing through the
global financial system every day.
Mixed in with the crowd were professional poker players such as T. J. Cloutier, winner of sixty major tournaments, and Clonie Gowen, a blond Texan bombshell with the face of a fashion model and the body of a Playboy pinup. More important to the gathering crowd, Gowen was one of the most successful female poker players in the country.
Muller, tan, fit, and at forty-two looking a decade younger than his age, a wiry Pat Boone in his prime, radiated the relaxed cool of a man accustomed to victory. He waved across the room to Jim Simons, billionaire math genius and founder of the most successful hedge fund on the planet, Renaissance Technologies. Simons, a balding, whitebearded
wizard of quantitative investing, winked back as he continued chatting with the circle of admirers hovering around him.
The previous year, Simons had pocketed $1.5 billion in hedge fund fees, at the time the biggest one-year paycheck ever earned by a hedge fund manager. His elite team of traders, hidden away in a small enclave on Long Island, marshaled the most mind-bending advances in science and mathematics, from quantum physics to artificial intelligence to voice recognition technology, to wring billions in profits from the market. Simons was the rare investor who could make Muller feel jaw-clenchingly jealous.
The two had known each other since the early 1990s, when Muller briefly considered joining Renaissance before starting his own quantitative hedge fund inside Morgan Stanley, the giant New York investment bank. Muller’s elite trading group, which he called Process Driven Trading, was so secretive that even most employees at Morgan weren’t aware of its existence. Yet over the previous decade the group, composed of only about fifty people, had racked up a track record that could go toe-to-toe with the best investment outfits on Wall Street, cranking out $6 billion in gains for Morgan.
Muller and Simons were giants among an unusual breed of investors known as “quants.” They used brain-twisting math and superpowered computers to pluck billions in fleeting dollars out of the market. By the early 2000s, such tech-savvy investors had come to dominate Wall Street, helped by theoretical breakthroughs in the application
of mathematics to financial markets, advances that had earned their discoverers several shelves of Nobel Prizes. The quants applied those same breakthroughs to the highly practical, massively profitable practice of calculating predictable patterns in how the market moved and worked.
These computer-driven investors couldn’t care less about a company’s “fundamentals,” amorphous qualities such as the morale of its employees or the cut of its chief executive’s jib. That was for the dinosaurs of Wall Street, the Warren Buffetts and Peter Lynches of the world, investors who focused on factors such as what a company actually
made and whether it made it well. Quants were agnostic on such matters, devoting themselves instead to predicting whether a company’s stock would move up or down based on a dizzying array of numerical variables such as how cheap it was relative to the rest of the market, how quickly the stock had risen or declined, or a combination
of the two—and much more.
That night at the St. Regis was a golden hour for the quants, a predators’ ball for the pocket-protector set. They were celebrating their dominance of Wall Street, just as junk bond kings such as Michael Milken had ruled the financial world in the 1980s or swashbuckling, trade-from-the-hip hedge fund managers such as George Soros had conquered the Street in the 1990s.
Muller flicked a lock of sandy brown hair from his eyes and snatched a glass of wine from a passing tray, looking for his friends. A few nonquants, fundamental investors of the old guard, rubbed elbows with the quant crowd that night. David Einhorn, the boy-faced manager of Greenlight Capital (so named when his wife gave him the green light to launch a fund in the 1990s), could be seen chatting on a cell phone by a tall, narrow window overlooking the corner of 55th Street and Fifth Avenue. Just thirty-seven years old, Einhorn was quickly gaining a reputation as one of the sharpest fundamental investors in the business, putting up returns of 20 percent or more year after year. Einhorn was also an ace poker player who would place eighteenth in the World Series of Poker in Las Vegas the following year, winning $659,730.
The next billionaire Muller spotted was Ken Griffin, the blueeyed, notoriously ruthless manager of Chicago’s Citadel Investment Group, one of the largest and most successful hedge funds in the business. Grave dancer of the hedge funds, Citadel was known for sweeping in on distressed companies and gobbling up the remains of the bloodied carcasses. But the core engines of his fund were computer driven mathematical models that guided its every move. Griffin, who sported a no-nonsense buzz cut of jet-black hair, was the sort of man who triggered a dark sense of foreboding even in close associates: Wouldn’t want to mess with Ken in a dark alley. Does he ever smile? The guy wants to be king of everything he touches.
“Petey boy.”
Muller felt a jolt in his back. It was his old friend and poker pal Cliff Asness, manager of AQR Capital Management, among the first pure quant hedge funds. Asness, like Muller, Griffin, and Simons, was a pioneer among the quants, having started out at Goldman Sachs in the early 1990s.
“Decided to grace us tonight?” he said.
Asness knew Muller wouldn’t miss this quant poker coronation for the world. Muller was obsessed with poker, had been for years. He’d recently roped Asness into a private high-stakes poker game played with several other traders and hedge fund hotshots in ritzy Manhattan hotel rooms. The game had a $10,000 buy-in, couch cushion change to topflight traders such as Asness and Muller.
The quants ran the private poker game, but more traditional investment titans joined in. Carl Icahn, the billionaire financier who’d gotten his start on Wall Street with $4,ooo in poker winnings, was a regular. So was Marc Lasry, manager of Avenue Capital Group, the $12 billion hedge fund that would hire former first daughter Chelsea Clinton
later that year. Lasry was known for being a cool investor whose icy demeanor belied his let-it-roll mentality. He was said to have once wagered $100,000 on a hand without even looking at his cards. And won.
The real point of Asness’s needle was that he never knew when the globetrotting Muller would be in town. One week he’d be trekking in Bhutan or white-water rafting in Bolivia, the next heli-skiing in the Grand Tetons or singing folk songs in a funky cabaret in Greenwich Village. Muller had even been spotted belting out Bob Dylan tunes in
New York’s subway system, his keyboard case sprinkled with coins from charitable commuters with no idea the seemingly down-on-his luck songster was worth hundreds of millions and flew around in a private jet.
Asness, a stocky, balding man with a meaty face and impish blue eyes, wore khaki pants and a white tee peeking out from his open collar. He winked, stroking the orange-gray stubble of his trimmed beard. Though he lacked Muller’s savoir faire, Asness was far wealthier, manager of his own hedge fund, and a rising power in the investment world. His firm, AQR, short for Applied Quantitative Research, was managing $25 billion and growing fast.
The year before, Asness had been the subject of a lengthy and glowing profile in the New York Times Magazine. He was a scourge of bad practices in the money management industry, such as ridiculously high fees at mutual funds. And he had the intellectual chops to back up his attacks. Known as one of the smartest investors in the world, Asness had worked hard for his success. He’d been a standout student at the University of Chicago’s prestigious economics department in the early 1990s, then a star at Goldman Sachs in the mid-1990s before branching out on his own in 1998 to launch AQR with $1 billion and change, a near record at the time. His ego had grown along with his wallet, and so, too, had his temper. While outsiders knew Asness for his razor-sharp mind tempered by a wry, self-effacing sense of humor, inside AQR he was known for flying into computer-smashing rampages and shooting off ego-crushing emails to his cowed employees at all hours of the day or night. His poker buddies loved Asness’s cutting wit and encyclopedic memory, but they’d also seen his darker side, his volatile temper and sudden rages at a losing hand.
Product details
- Publisher : Crown Currency; Reprint edition (January 25, 2011)
- Language : English
- Paperback : 352 pages
- ISBN-10 : 0307453383
- ISBN-13 : 978-0307453389
- Item Weight : 8.8 ounces
- Dimensions : 5.21 x 0.78 x 7.91 inches
- Best Sellers Rank: #71,891 in Books (See Top 100 in Books)
- #33 in Mathematics History
- #155 in Economic History (Books)
- #713 in Investing (Books)
- Customer Reviews:
About the author
Scott Patterson is author of the New York Times best-selling book The Quants and Dark Pools and a staff reporter for The Wall Street Journal, where has written about hedge funds, high-speed trading, Warren Buffett, the global mining industry, the Jan. 6, 2021 investigation, and climate change. His work has also appeared in the New York Times, Rolling Stone and Mother Earth News. He has a masters of arts degree from James Madison University. He lives in Alexandria, Virginia.
Customer reviews
Customer Reviews, including Product Star Ratings help customers to learn more about the product and decide whether it is the right product for them.
To calculate the overall star rating and percentage breakdown by star, we don’t use a simple average. Instead, our system considers things like how recent a review is and if the reviewer bought the item on Amazon. It also analyzed reviews to verify trustworthiness.
Learn more how customers reviews work on AmazonCustomers say
Customers find the book engaging and informative. They appreciate the well-written, high-level explanations of the quant world. The book provides useful insights into key players' lives and motivations. Readers describe the writing style as coherent and well-documented. The information provided is interesting and informative about key players in the finance industry. Opinions differ on the historical context - some find it useful and comprehensive, while others feel it lacks historical perspective.
AI-generated from the text of customer reviews
Customers find the book engaging and interesting. They say it's a good follow-up to The Man Who Solved the Market and a must-read for intelligent investors.
"...This was a nice follow on to that book as well as The Man Who Solved The Market by Gregory Zuckerman which dives deep into the life of legendary..." Read more
"...Patterson's perspective on this historical epoch is essential reading for those interested in economics, culture and human behavior...." Read more
"As a history of quantitative trading, this book is a lot of fun, and despite what some of the reviewers might say, the author appears to understand..." Read more
"...background in probability theory and statistics and I found the book worth reading, although often I had to use my own understanding of statistics..." Read more
Customers find the book useful and interesting. They say it provides good insights into the lives and motivations of key players in the financial industry. The book covers the origins of quantitative investing and lessons that remain relevant even after the financial crisis. Readers appreciate the insightful biographies of various quants included throughout the book.
"This is an interesting read for financial economists, financial engineers, and other quants working in high finance who want to learn more of the..." Read more
"...that book over this one for anyone looking for a deeper understand of how financial markets work and how they have radically changed over the past..." Read more
"...Certainly, not a great book but interesting and fun to read. So I was surprised to see some very negative reviews of the book on Amazon...." Read more
"...The historical anecdotes in the book are somewhat entertaining, as are the brief biographies of some of the managers and employees of a few of the..." Read more
Customers appreciate the book's writing style. They find it well-written and engaging, with a high-level explanation of how the financial world works. The author does a great job describing working conditions, personalities, and emotions in a coherent and entertaining way. The details are fantastic, and the narrative is clear. Overall, readers appreciate the author's ability to translate complex concepts into plain English.
"...The book does an excellent job in providing us with a deep knowledge of the inner profile of a quant and what makes him or her tick...." Read more
"Good description of the success (and excesses) of the quant movement, as well as the catastrophic downfall...." Read more
"...A lot of this book therefore is just plain silly, and the writing incredibly sophomoric when discussing some of the mathematics used in financial..." Read more
"...The reading and pace is very good for a book about financial matters and the author tells a very entertaining narrative...." Read more
Customers find the book informative and entertaining. They appreciate the interesting stories about finance and key players in the Quant market. The author has great access to fascinating people and reveals plenty of fresh information about behind-the-scene actions.
"This is an interesting read for financial economists, financial engineers, and other quants working in high finance who want to learn more of the..." Read more
"...All in all, it was a good introduction to who quants are and how they arose, so I would recommend it for readers seeking material covering this." Read more
"The enjoyable portions of the book were those detailing objective history in the finance field...." Read more
"...It also guides us through the mayhem of the financial madness that overtook The Street during the global financial madness three years ago...." Read more
Customers have different views on the historical context. Some find it a useful narrative history of key threads in the development of quantative finance, especially the final chapters about Renaissance. Others feel the narrative lacks historical perspective and is unconvincing, with a timeline that jumps back and forth over several financial crises. The book seems more like a biographical history of a few so-called "quants" than an engaging historical account of the development of quantitative finance.
"...The connection between the quants and the 2008 financial crisis isn't shown convincingly...." Read more
"...The book is best when providing a narrative history of the rise of quantatative finance and the rejection of the prevailing Efficient Markets..." Read more
"...Just some rehashed stories from the financial press with a side order of industry gossip that may be titillating to some, but is simply a waste of..." Read more
"...narrative seemed clunky, dumbed down, and timeline jumped back and forth over several financial crises and several characters all doing the same..." Read more
Reviews with images
Good for learning about the rise of Quant Finance, perhaps too strong on the cause-effect narrative
Top reviews from the United States
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- Reviewed in the United States on September 14, 2024This is an interesting read for financial economists, financial engineers, and other quants working in high finance who want to learn more of the history of hedge funds. However, the book would likely be over the heads for financial planners, local brokers, and others with no advanced statistical and econometric experience in the hedge fund industry.
- Reviewed in the United States on March 13, 2021I read this book after thoroughly enjoying Scott Patterson's follow on book called Dark Pools which I read during the game stop and Reddit trade mania of early 2021. I'd recommend that book over this one for anyone looking for a deeper understand of how financial markets work and how they have radically changed over the past three decades. This was a nice follow on to that book as well as The Man Who Solved The Market by Gregory Zuckerman which dives deep into the life of legendary quant Jim Simons.
We meet several legends in The Quants as well including Ken Griffin, Cliff Assess and Peter Mueller. The book is best when providing a narrative history of the rise of quantatative finance and the rejection of the prevailing Efficient Markets Hypothesis which I was taught in college. It also does a nice job comparing and contrasting these Wall Street icons and their hedge funds with traditional legendary investors such as Warren Buffett, Peter Lynch and Bill Gross. Ed Thorp makes a large appearance here as well and his influence cannot be understated on the multitudes of quants that followed.
Towards the end of the book, Patterson flies through the 2007 and 2008 market meltdown and teases some of the correction in 2009 and 2010 but this part felt a bit rushed to me and felt like a superficial treatment of the perils, dangers, corrections and lessons that were made during this time. While the Hollywood ending might have been the comeuppance of the quantatative, that's not exactly what happened and a deeper exploration of this period is warranted.
All in all, it was a good introduction to who quants are and how they arose, so I would recommend it for readers seeking material covering this.
- Reviewed in the United States on July 25, 2010The Catastrophe of Certainty
In his fascinating book entitled "On Being Certain - Believing You Are Right Even When You're Not," neuroscientist Dr. Robert A. Burton concludes the work with this poignant phrase: "We do not need and cannot afford the catastrophes born out of a belief in certainty."(pp.223-224).
Well, the Wall Street Journal's Scott Patterson chronicles the catastrophe that Dr. Burton's conclusion alludes to in this riveting volume entitled, THE QUANTS - How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It. Patterson states his case bluntly: "In other words, there is no single truth in the chaotic world of finance, where panics, manias, and chaotic crowd behavior can overwhelm all expectations of rationality. Models designed on the premise that the market is predictable and rational are doomed to fail. When hundreds of billions of highly leveraged dollars are riding on those models, catastrophe is looming." (P. 294).
Human history appears to be replete with disasters wherein one group seems `certain' they have captured the `truth.' The ongoing U.S. and global economic crisis is no different. Listen to Patterson:
The Truth was a universal secret about the way the market forked that could only be discovered through mathematics. Revealed through the study of obscure patterns in the market, the Truth was the key to unlocking billions in profits. The quants built giant machines - turbocharged computers linked to financial markets around the globe- to search for the Truth, and to deploy it in their quest to make untold fortunes. (p.8).
"It was about money, of course, but it was also about proof. Each added dollar was another tiny step toward proving they had fulfilled their academic promise and uncovered the Truth (p.8)
To the quants, beta is bad, alpha is good. Alpha is the Truth. If you have it, you can be rich beyond your wildest dreams." (p.8).
What happened? Patterson's perspective on this historical epoch is essential reading for those interested in economics, culture and human behavior. It is also a treatise about man and machine. He writes, "Always trust the machine" was the mantra." (P.128). It's also about our human appetite for order and predictability, as well as our propensity to become victims of the illusory: "The model created an illusion of order where none existed." (P.196). "To quants, unprecedented is perhaps the dirtiest word in the English language. Their models are by necessity backward-looking, based on decades of data about how markets operate in all kinds of conditions. When something is unprecedented, it falls outside the parameters of the models. In other words, the models don't work anymore." (Pp. 271-272).
Patterson does an absolutely spectacular job profiling the key players, organizations and belief systems that fueled the growth in hedge funds from $39 billion in assets in 1990 to $490 billion in 2000, and $2 trillion in 2007. How? How could such a rate of growth be sustained? Patterson's take: "the model was a jury-rigged formula based on the irrationally exuberant, self-reinforcing, and ultimately false wisdom of the crowd that assigned make-believe prices to an incredibly complex product. For a while it worked, and everyone was using it. But when the slightest bit of volatility hit in early 2007, the whole edifice fell apart. The prices didn't make sense anymore. Since nearly every CDO manager and trader used the same formula to price the fizzing bundles yet another instance of crowding that results from popular quant methodologies-they all imploded at once." (P.195).
I can't wait for the next book by Scott Patterson. THE QUANTS - How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It is distinctly a five star work of art. Essential reading. You'll love it. Spellbinding!
Top reviews from other countries
- Gautam NReviewed in Canada on January 3, 2025
5.0 out of 5 stars Amazing read
If you’re looking to further deepen your knowledge of how the quants work in the market, highly recommends. Also read Dark Pools
-
Gabriel GarbiReviewed in Brazil on December 31, 2021
5.0 out of 5 stars Excelente forma de estudar a história do mercado financeiro
Ao mesmo tempo que existe um enredo, conceitos e personagens são abordados. Uma excelente forma de olhar para a história do mercado financeiro e conectar alguns pontos.
- MisaelReviewed in Mexico on March 9, 2021
5.0 out of 5 stars Buen producto
Excelente
- Toby BernhardtReviewed in France on May 31, 2022
5.0 out of 5 stars The quants
Great read. In depth analysis of HFT firms and the new era of trading. Identifies the fibre optic lines that firms were using to cut the line by using speed to get ahead of retail orders. Mentions the IEX exchange formation and the function of the exchange. Eye opening accounts inside wall st and abroad really, what occurred spread worldwide. As far as Australia.
- Steviet010Reviewed in the United Kingdom on June 5, 2018
5.0 out of 5 stars A brilliant read!
Fantastic book! Really interesting read and gripping!