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The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It Hardcover – February 2, 2010

3.6 out of 5 stars 192 customer reviews

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Editorial Reviews

From Publishers Weekly

In a fast-moving narrative, Wall Street Journal reporter Patterson explores the coterie of mathematicians behind the Wall Street crash of 2008. The story's stars are "an unusual breed of investors" called quants, who "used brain-twisting math and super-powered computers to pluck billions in fleeting dollars out of the market." Following the first quant, Beat the Market author Ed Thorp, from his graduate school days in 1955, and introducing others like Peter Muller and Ken Griffin as they established funds at major investment firms, Patterson spins a fascinating story of riches amassed for a few and, inevitably, lost for many: a collapsing hedge fund, "imploding under the weight of toxic subprime assets," took down the system "like a massive avalanche started by a single loose boulder." Though his narrative is interesting and easy to follow, Patterson's explanations of investment terms are not for novices; a glossary would have helped. As he puts the excesses and failures of Wall Street into perspective, however, Patterson also offers evidence that Wall Street hasn't learned its lesson: as of spring 2009, "several banks reported stronger earnings numbers... in part due to clever accounting tricks... and other potentially dangerous quant gadgets being forged in the dark smithies of Wall Street."
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

From Booklist

*Starred Review* Journalist Patterson proves Mark Twain’s point that “truth is stranger than fiction.” Patterson’s recounting of the events leading up to and including the global financial meltdown in 2007 and 2008 features the Quants, a new breed of investor, a corps of elite math geniuses who exchanged the hunches of risk-taking traders for advanced mathematical tools, including complicated algorithms and supercomputers. These new titans of Wall Street set off a chain of events for a financial catastrophe beginning in August 2007, which nearly destroyed the world’s financial markets. This is primarily the story of four main “characters”—Morgan Stanley’s Peter Muller, Citadel hedge fund’s Ken Griffin, Cliff Asness of AQR hedge fund, and Boaz Weinstein of Deutsche Bank. These and other number-crunching wizards amassed multibillion-dollar war chests and then the numbers turned against them. Their ascendancy to the heights and then extraordinary fall to near extinction is a remarkable story, as is the possibility that they all will rise from the ashes. This is a must-read, excellent book. --Mary Whaley

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Product Details

  • Hardcover: 352 pages
  • Publisher: Crown Business; First Edition edition (February 2, 2010)
  • Language: English
  • ISBN-10: 0307453375
  • ISBN-13: 978-0307453372
  • Product Dimensions: 6.1 x 1.2 x 9.7 inches
  • Shipping Weight: 1.2 pounds
  • Average Customer Review: 3.6 out of 5 stars  See all reviews (192 customer reviews)
  • Amazon Best Sellers Rank: #87,285 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

Format: Hardcover
The subtitle begins, misleadingly, with the word, "how." There is no "how" in the book. It is a beach read, an adventure story full of noir language, but short on words such as nonlinear, leptokurtic, nonparametric, adaptive. I think he uses the term "standard deviation" once.

If Scott Patterson edited The Joy of Cooking, his recipe for chocolate cake would read as follows:

"Irma Rombauer shuffled nervously. A little flour, a few eggs, and - wham, bam - through the magic of French chef-ery, a cake would magically appear. It had always worked in the past. Surely it would again this time, wouldn't it? Rombauer stared pensively at the oven."

Entertaining, but hardly enlightening, and not useful.
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Format: Hardcover Verified Purchase
Scott Patterson's _The Quants_ was thoroughly terrible. Patterson manages to make a dizzying array (to borrow a term he overuses) of errors, packaged in a mass of hyperbolae and confused statements.

It had a few good qualities, which I'll start with. It was pretty entertaining, especially the first half, and it was a quick and easy read. It also had some interesting bits that don't appear in other books (that I'm aware of): the "second forty hours" at Renaissance and the description of AQR deciding to go back into the markets on the Friday just after the quant liquidation in August 2007. Finally, I applaud the message that risk management policies based on the normal distribution can be deeply pernicious. But the problems with this book were monumental.

The first problem with Patterson's book is that it's wrong at its core. Quant traders weren't guilty of causing the credit crisis. Some of them were victimized by it (when Lehman went bust, it took with it a bunch of money belonging to some very good, honest, and hardworking quant traders that were Lehman's prime brokerage clients). It's foolish to claim that market neutral trading, CTAs, and high frequency traders were somehow responsible for investment banks' over-leveraged, toxic balance sheets. The responsibility for this falls squarely on the shoulders of banks' managers, and perhaps also on the shoulders of free-market disciples who believe, despite all the evidence throughout history to the contrary, that regulation of human behavior is bad.
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Format: Paperback
Disclosure: I work as a quant, primarily in risk management. This is not the only book I have examined, written by an author who clearly does not understand mathematics well enough to render a qualified opinion, to pin the blame on quantitative professionals in finance. I have seen the reality of it first hand for myself, time after time, where the sales and marketing people want to get out there and SELL SELL SELL financial products involving derivatives, and when times are good, they have big celebrations about how great we are, and how much we sold. However, they often have marketed these products by going over the heads of quant/risk professionals who were not given the opportunity to perform due diligence, or who have issued red flags over questionable assumptions. When the market turns down, however, the company has to scramble to cover their liabilities and losses. Don't say we didn't tell you so.
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Format: Hardcover
I heard an NPR interview pertaining to this book and immediately bought a copy. Many of the personalities woven into Patterson's tale are very intriguing, to say the least.

This book neatly retraces the influences of several quantitative traders ("quants", got it?). The author provides a history spanning the early work of Ed Thorp ("The Godfather") up to the current generation of quants who currently run the high-frequency trading strategies on Wall Street.

All in all, the book is a good read... but it also could have been assembled in a more informative way. The author set out a rather difficult task for himself: on the one hand, he has to tell the anecdotes in a way that will reach a wide audience; on the other hand, he has to provide a thorough enough treatment of topics that could easily be found in an advanced textbook. Patterson's approach goes right down the middle, so that sometimes it is condescendingly basic, while at other times unintelligibly riddled with market lingo. Hence most readers will not be able to read it at a consistent pace.

I suspect that the main frustration for most readers will be that extremely important bits are incompletely explained at the outset. For example, the distribution curve on page 30 has no axis labels... either you know what the author is talking about or you don't. Various terminology is not explained well at all; for example, the author's description of warrants will likely send you straight to wikipedia for clarification:

""Warrants are basically long term contracts, much like a call option, that investors can convert into common stock."

Basically? Call option? Common stock?! How about a more through lexicon at the back of the book for everyone who isn't a daytrader?!
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