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Quant: A Dangerous Word Frequently Misused and Misunderstood

Discussion in 'Career Advice' started by Andy Nguyen, 9/11/12.

  1. Andy Nguyen

    Andy Nguyen Member

    Aaron Brown has a fascinating article on the usage of the word "quant". After reading this, you may have second thought about wanting to be called a "quant".

    Why It Matters
    Nevertheless, it is possible to prune away some incorrect senses, which come mainly from false etymologies, and to organize some of the main senses and connotations for clarity. It’s worth doing, because “quant” has become an important word. It is at the center of debates over the financial system from risk management to derivative valuation to high-frequency trading.

    Sloppy use can lead to error. For example, are the quants in Scott Patterson’s book The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It as wise and gentle as Emanuel Derman? Or are the words being used in different senses? That question is important for how you feel about financial reform proposals.

    More dramatically, when Doug Kass, the president of hedge fund Seabreeze Partners, exclaims, "Kill the quants before they kill us," he should be sure that the quants he orders killed are the same as the quants he fears will kill him.

    Moving from policy to personal, one definition of quant is someone who has figured out how to turn IQ points into dollars. Is that definition operative for someone who enters a master’s program in quantitative finance, hoping to learn how to parlay brains and a friendly relationship with equations into Wall Street wealth? Or are the people running those programs relying on confusion between two senses to build their own wealth?

    More generally, if you go down the Forbes list of newly-wealthy people, you see the largest group and over half the young people could be at least loosely described as financial quants. The next largest group, and almost all the remaining young people who didn’t inherit their wealth, are technology entrepreneurs who share some stereotypical quant traits like intelligence, technical skills, and social awkwardness. While it’s easier to find quants with money or influence than power, powerful people are relying increasingly on quant-type advice. If quant-like people are taking over the world, we should have a nuanced nomenclature for discussing them.

    Much of this essay is based on personal experience. I consider myself a quant and have been around quants since before the earliest uses of the term. This stuff is hard to understand, more precisely, easier to misunderstand, if you don’t work as a quant every day, or if you try to reconstruct meanings after the fact. I also did extensive searching for usage and definition attempts, and contacted some authoritative sources (that is, writers who used the word in ways that have become canonical). Let’s begin with what current authors have to say.

    The Experts Weigh In

    Scott Patterson, the author of The Quants, told me that as an outsider looking in, he needed a general and neutral term. But he also mentioned people profiled in his book who would deny being quants, who think of themselves as traders, and that the quants are the risk managers. Emanuel Derman, who wrote My Life as a Quant, described the term as pejorative and said that in the 1980s it was never used by anyone to describe himself. He took his book title from the movie My Life as a Dog, a reference to the feeling that being called a quant implied being a second-class citizen on Wall Street.

    Barry Schachter, co-author of How I Became a Quant, cringes when people call him a quant, although he admits he is one. I think this is the most common attitude among quants of Barry and my generation. He also shared Scott Patterson’s problem that the word can encompass a broad spectrum of people, many of whom reject the term either for themselves or for others. He got comfortable with the working definition that a quant is anyone who does a quant’s job, it does not depend on specific training or skills.

    Barry’s co-author, Richard Lindsey, took the opposite view (which is one reason their book is so good). He thinks being a quant is a character trait. It is rational, analytical thinking that defines it, not specifically knowledge of mathematics. Although the term is usually reserved for people in finance, Richard thinks it can be applied in all disciplines.

    Brett Jiu, who wrote Starting Your Career as a Wall Street Quant, had the most quant response, in which Emanuel Derman concurred,. He divides quants into three levels. At the broadest it means anyone who works with data. The middle level requires deeper knowledge of theory, including mathematics and statistics. The narrowest level—and this is a point several authors made—refers to someone with a doctorate in math, statistics, physics, or mathematical finance, who works in high finance, that is, developing new strategies and products rather than programming for someone else. Brett considers this the original use, and speculates that the definition broadened as the connotations became more positive and more people wanted to call themselves quants.

    I think this is a fair summary of what the word means today. It has a reasonably specific meaning when used as an adjective; there’s not much debate about which hedge fund strategies are quant strategies for example. The distinction has less to do with the amount of mathematics or theory that went into developing the strategy than with how systematically it is run. In any event, the usage is fixed by tradition and does not always follow obvious logic.

    Applied to a person, the Platonic ideal is someone with a quantitative PhD and a deep understanding of financial theory, who applies herself in creative and important ways to financial practice, and who has an engineer’s openness and honesty. For every ideal quant there are many people who share some of these characteristics to different degrees. There is no bright line distinction that is accepted generally, just people with different levels of quantness.

    Read more: http://www.minyanville.com/business...quant-equity/8/21/2012/id/43360#ixzz26BXQ6IJR
     
  2. Dave Haan

    Dave Haan aka nnyhav

    Quaint. (And we know that etymology, eh? :rolleyes:)
    But then the essay kinda meanders as much as the term ...