An Important Book: "The Quants"

Just finished reading Wall Street Journal reporter Scott Patterson's The Quants.

This book is must reading for anyone who wants to understand the quant world, which means, if you are a market trader or investor, you need to read the book. It provides in depth details of the quants and how they lived and traded before, during and after the financial crisis caused their mathematical formulas to blow up in their faces.

Patterson knows how to tell a riveting story so at times the book even  becomes a real page turner.

His description of how Boaz Weinstein placed a "capital structure arbitrage" trade on GM that went awry when Kirk Kerkorian started buying GM common stock, and how Weinstein handled the tense period, is worth the price of the book alone. But, this is only one tale of many.

Patterson's description of the confrontation between quant Peter Muller and skeptic Nassim Nicholas Taleb is awesome.

In short, after reading this book you will get a true sense for the big time money world of quants and how they operate. This can be of extreme value when trading for yourself.

You will also learn the Achilles heel of quants, they have no clue as to business cycle theory and they fail completely in understanding that there are no constants in the field of human action, and therefore, regardless of how long a trading mathematical program works, they fail to understand that it is subject to price activity far outside the expected range.

Patterson is silent on the topic of business  cycle theory, but he does make clear in the book that Taleb's warnings about extreme price activity were spot on, and that the quants failed completely in appreciating the warning.

Hopefully, by reading this book, you will learn from the quants mistakes and not make them during your own personal trading in the years to come.