What I want to point out Candylips is this: what you see happening in the world of quant finance is professionalism being given its proper place. Prior to the financial crisis, there was not much difference between gambling and what the so called quants were doing. Not surprising because most of them had no formal training/professional training in finance let alone risk management, most picked the little finance knowledge on the job and majority were physicists and mathematicians (even till now) who had complete trust in mathematical models as if market behaviors can be adequately modeled as obtainable in the physical sciences but we all know that market microstructure and it's workings are very dynamic (can anybody perfectly predict himself?) Financial Engineering to some extent is an attempt to marry mathematical science and finance together. In essence, risk management which was relegated to the background prior to the financial crisis questions the assumptions and robustness of quant models. What is going on now is what I called professionalism of quant finance: stress testing and questioning the assumptions of quant models which is the ideal thing to do but were rarely carried out because of greed and the human nature to maximize profits at any costs not minding the consequence and disregarding risks inherent in such strategies. So Quant FInance is not dying, it is only undergoing professionalism and rebirth.

RixExpat: What I want to point out Candylips is this: what you see happening in the world of quant finance is professionalism being given its proper place. Prior to the financial crisis, there was not much difference between gambling and what the so called quants were doing. Not surprising because most of them had no formal training/professional training in finance let alone risk management, most picked the little finance knowledge on the job and majority were physicists and mathematicians (even till now) who had complete trust in mathematical models as if market behaviors can be adequately modeled as obtainable in the physical sciences but we all know that market microstructure and it's workings are very dynamic (can anybody perfectly predict himself?) Financial Engineering to some extent is an attempt to marry mathematical science and finance together. In essence, risk management which was relegated to the background prior to the financial crisis questions the assumptions and robustness of quant models. What is going on now is what I called professionalism of quant finance: stress testing and questioning the assumptions of quant models which is the ideal thing to do but were rarely carried out because of greed and the human nature to maximize profits at any costs not minding the consequence and disregarding risks inherent in such strategies. So Quant FInance is not dying, it is only undergoing professionalism and rebirth.

Unfortunately, or rather fortunately, as you have stated, most top quant positions are still dominated by physicists, mathematicians, computer scientists/engineers, econophysicists and any other professionals who possess strong maths/computing skills. I think there must be something unique about these people because employers of quants keep employing them.

Meanwhile, in my experience, the content of typical quant finance modules is composed in such a way that math+computing>>finance.

T22

RixExpat: What I want to point out Candylips is this: what you see happening in the world of quant finance is professionalism being given its proper place. Prior to the financial crisis, there was not much difference between gambling and what the so called quants were doing. Not surprising because most of them had no formal training/professional training in finance let alone risk management, most picked the little finance knowledge on the job and majority were physicists and mathematicians (even till now) who had complete trust in mathematical models as if market behaviors can be adequately modeled as obtainable in the physical sciences but we all know that market microstructure and it's workings are very dynamic (can anybody perfectly predict himself?) Financial Engineering to some extent is an attempt to marry mathematical science and finance together. In essence, risk management which was relegated to the background prior to the financial crisis questions the assumptions and robustness of quant models. What is going on now is what I called professionalism of quant finance: stress testing and questioning the assumptions of quant models which is the ideal thing to do but were rarely carried out because of greed and the human nature to maximize profits at any costs not minding the consequence and disregarding risks inherent in such strategies. So Quant FInance is not dying, it is only undergoing professionalism and rebirth.

Very true, from what i understand about the meltdown, it all went ca-boot because the quant guys that built these complex models do not fully understand the market in which they were modelling and the traders that used their models also really did not understand how to make adequate adjustments to take into account the evolving nature of the market, so it became a case of garbage in garbage out. This is why i think it is essential for quants to take exams like the CFA to familiarize themselves with the economy and market structures. It is typical in every bubble, they tend to spiral out to unsustainable heights and players get complacent until the market is forced to react and in this case the result was drastic. RixExpat got it spot on with the comment on professionalism of the field and the vital process of stress testing.

tobbi1310:


Very true, from what i understand about the meltdown, it all went ca-boot because the quant guys that built these complex models do not fully understand the market in which they were modelling and the traders that used their models also really did not understand how to make adequate adjustments to take into account the evolving nature of the market, so it became a case of garbage in garbage out. This is why i think it is essential for quants to take exams like the CFA to familiarize themselves with the economy and market structures. It is typical in every bubble, they tend to spiral out to unsustainable heights and players get complacent until the market is forced to react and in this case the result was drastic. RixExpat got it spot on with the comment on professionalism of the field and the vital process of stress testing.

Although this suggestion sounds good, don't you suspect that this may render the regular CFA finance guys useless and jobless? Me thinks that if all quants are made to take the CFA then employers would want to employ them to perform their specialized quant jobs as well as the jobs of a typical CFA holder, all in a bid to cutting cost.

Many people's utility functions are increasing in money, so a lot of people are always ready (or greedy) to make more money, even though this translates to increased professional responsibilities. Employers, on the other hand, would not normally refuse to pay $25 to someone who can successfully perform two functions instead of paying $ 14 and $ 16 to two different people to perform these functions separately.

T22.

^^^ Quants can take CFA to improve their financial knowledge but i don't think quants will want to work as a financial analyst . The world of fundamental analysis(accounting and economics) is not want interests Quants. The are more interested in mathematics and c++

From my experience, Quants instead usually aspire to be traders because that is where d big bucks is and these are the people that use their models

tanimola22:

Although this suggestion sounds good, don't you suspect that this may render the regular CFA finance guys useless and jobless? Me thinks that if all quants are made to take the CFA then employers would want to employ them to perform their specialized quant jobs as well as the jobs of a typical CFA holder, all in a bid to cutting cost.

Many people's utility functions are increasing in money, so a lot of people are always ready (or greedy) to make more money, even though this translates to increased professional responsibilities. Employers, on the other hand, would not normally refuse to pay $25 to someone who can successfully perform two functions instead of paying $ 14 and $ 16 to two different people to perform these functions separately.

T22.

Yes although this may seem to be the case, I doubt it would come to that because 'oyinbos' in general believe in specialization, and the efficiency of division of labor. Each individual role is already highly demanding and time consuming(ridiculous hours) and also quite different, I can't imagine putting all that workload on an individual, so on that note maybe a full CFA designation would be an extreme requirement but at least the level 1 or an undergraduate knowledge of economics and finance should be the minimum accepted requirement. Some institutions base their fin math/engr program in their business schools and generally do a better job of integrating knowledge from all the required fields into their program but in most cases especially in the u.k the program is based in the mathematics department. Also another thing I noticed is that the high dependence on complex mathematics and programming skills turns most candidates with a non-science(i.e finance or eco) background off the course, even a couple of students I met this year studying for a financial mathematics or maths with economics Bsc, all would rather go along the actuarial path or regular banking roles because it is less demanding and not programming based. And this is the main reason why mathematicians and physicists are usually the ones who end up with the degree but it's no excuse not to learn about the environment you plan to build a career in, a passion for the field should drive them to acquiring knowledge

RixExpat: So Quant FInance is not dying, it is only undergoing professionalism and rebirth.

bros i didn's say Quant finance as a whole is dying. but traditional quant roles are dying

candylips: ^^^ Quants can take CFA to improve their financial knowledge but i don't think quants will want to work as a financial analyst . The world of fundamental analysis(accounting and economics) is not want interests Quants. The are more interested in mathematics and c++

From my experience, Quants instead usually aspire to be traders because that is where d big bucks is and these are the people that use their models

Hahaha, boredom would kill quants if they did.

T22

tobbi1310:

Yes although this may seem to be the case, I doubt it would come to that because 'oyinbos' in general believe in specialization, and the efficiency of division of labor. Each individual role is already highly demanding and time consuming(ridiculous hours) and also quite different, I can't imagine putting all that workload on an individual, so on that note maybe a full CFA designation would be an extreme requirement but at least the level 1 or an undergraduate knowledge of economics and finance should be the minimum accepted requirement. Some institutions base their fin math/engr program in their business schools and generally do a better job of integrating knowledge from all the required fields into their program but in most cases especially in the u.k the program is based in the mathematics department. Also another thing I noticed is that the high dependence on complex mathematics and programming skills turns most candidates with a non-science(i.e finance or eco) background off the course, even a couple of students I met this year studying for a financial mathematics or maths with economics Bsc, all would rather go along the actuarial path or regular banking roles because it is less demanding and not programming based. And this is the main reason why mathematicians and physicists are usually the ones who end up with the degree but it's no excuse not to learn about the environment you plan to build a career in, a passion for the field should drive them to acquiring knowledge

Fair enough. All is to make it big, whether quant or any other.

T22

@tanimola22 Hi T22.... I just got a call from ARM inviting me for an interview...I did not do any apt test with them....I just want to know what to expect....is it possible for them to conduct an apt test b4 d interview? Pls I need tips on there apt test and interview. I will be waitin for ur reply.

lololo5: @tanimola22 Hi T22.... I just got a call from ARM inviting me for an interview...I did not do any apt test with them....I just want to know what to expect....is it possible for them to conduct an apt test b4 d interview? Pls I need tips on there apt test and interview. I will be waitin for ur reply.

Hi,

It all depends on the position you applied for and how you applied. Is it entry level or experienced? Did you respond to a specific job advert? How did you apply? Do you have previous experience in buyside finance/ investment jobs?

Normally, for entry level, the process is Test---->Case Study and Presentation------>Interview(s)--------->Offer or rejection. As I hear, the test is GMAT styled and contains verbal and quantitative. The case study is a business type and the presentation is based on your findings during the case study. The interview shouldn't catch an active job hunter unawares.

Let us know how everything went when you are done. I surmise your interview is tomorrow.

T22.

thanks T22 for the info...d position should b for entry level...because i have no job experience...finished serving last year...and i hv done so many interviews with no luck....do u think i have a chance dere...because i heard dat dey prefer pre-nysc and nysc. Y am also scared is because i don't have any professional qualification...d interview is takin place next week .....am waiting for ur reply..

lololo5: thanks T22 for the info...d position should b for entry level...because i have no job experience...finished serving last year...and i hv done so many interviews with no luck....do u think i have a chance dere...because i heard dat dey prefer pre-nysc and nysc. Y am also scared is because i don't have any professional qualification...d interview is takin place next week .....am waiting for ur reply..

You will be fine. Keep hammering, don't stop. You also have a chance, just prepare well for the interview. Forget about work experience, the firm will train you should you scale through the interview process.

You are even lucky to have been invited without any prior assessment.

Prepare hard for the interview, and try to appear confident in your modest skills. You may be competing against foreign degree holders, master's degree holders and holders of professional qualifications. Don't be deterred! Just be focused.

T22.

@T22 ur words r really inspiring...thanks 4 d advice...i'll give it a shot even though i know that my chances r slim...buh let us assume am givin an apt test b4 d interview...should i study barron,kaplan,shl or IEC GMAT...pls just temme hw dere test is structured and also possible interview questions

lololo5: @T22 ur words r really inspiring...thanks 4 d advice...i'll give it a shot even though i know that my chances r slim...buh let us assume am givin an apt test b4 d interview...should i study barron,kaplan,shl or IEC GMAT...pls just temme hw dere test is structured and also possible interview questions

Remove SHL from your list. Study the rest. Do the exercises and cram some answers to the very difficult questions, just in case. The test is quant and verbal.

Interview questions, tell us about yourself. Read other behavioral interview questions.

T22

There are two possible reasons for the call from ARM. The first is that you have been invited for a chat in preparation for a new program that they are about to launch called the ARM Youth Talent Program (AYTP) . It is an internship program aimed at recruiting fresh talent pre and post NYSC for an intensive graduate development program. Check their careers website for more details.

Secondly, it could be possible that you have been considered for a non specialist role or sales role within the firm. Either way, the first stage in their recruitment exercise is a chat to assess your suitability for the job(I presume that this is what you are referring to as an interview). After this, every other step cited by T22 follows. Please prepare well, because their recruitment process is quite tough. All the best!

T22, Denee or others, do you guys know what investment banking pays analyts post nysc (base + bonus)- stanbic, fbn cap etc

@T22 and Deenee thanks for ur contribution,I will put in my best for dis job.....it seems to be d last resort....GOD bless D two of u abundantly....

tobbi1310:


Very true, from what i understand about the meltdown, it all went ca-boot because the quant guys that built these complex models do not fully understand the market in which they were modelling and the traders that used their models also really did not understand how to make adequate adjustments to take into account the evolving nature of the market, so it became a case of garbage in garbage out. This is why i think it is essential for quants to take exams like the CFA to familiarize themselves with the economy and market structures. It is typical in every bubble, they tend to spiral out to unsustainable heights and players get complacent until the market is forced to react and in this case the result was drastic. RixExpat got it spot on with the comment on professionalism of the field and the vital process of stress testing.

Greed, not Quants, caused the market to go "ca-boot"! It's completely unfair and nonsensical to blame quant guys for the world's greed! and note: Greed is not bad in itself, that's why it's always a zero sum game. While millions may have lost their entire life savings from the market that went "ca-boot", others have been made billionaires by it and are simply eagerly waiting for the next drawdown!..This may not be fair nor ethical, it's simply the way of the Jungle and for these people, Greed is King!

If you really think taking the CFA would make any difference, then you are in for a shocker! The CFA is regarded by many people as a qualification that is only good enough to impress clients. There's nothing better on a a marketing document than saying "Your investments are being managed by 20 CFA holders" ...it's all a gimmick, mostly for the uninitiated wealthy who just need some form of reassurance.

The world can only get greedier, not less, most desks would keep hiring people who can design models that will pass on the risks of a trade to the "other" guy while they keep the returns to themselves. Since the CFA does not teach how to do this, it is only a matter of time before no one cares about how much fundamental analysis you can do or how much ethics you have and the focus will be how greedy can you get and how well you can design models that will keep us afloat while the other guys get smoked. This is where the intellectual prowess of Phds and Quants come in!

We are all to blame for the crisis and I will say without doubt that we are in it for the long haul if we don't change our mindset. No doubt, "models" are good for forecast, sensitivity and scenario analysis purposes. My question is can they really quantify how far
a man's "avarice" will take him?


I recently watched the infamous video clip of "Mr Integrity" stuffing wads of dollar bills into his hat and at that very moment I asked myself certain questions? At what price? This is someone who has been in the house for 13 years and makes an estimated 1/4 of a billion naira in allowances per year and is rumored to be a favored candidate come 2015. Models are as good as the level of the avarice of the individual that develops them. It is this avarice that compelled Citibank to rack up billions of worthless credit swaps because the models predicted them to be a good investment, even when the crisis was at its peak.


No amount of qualification, quantitative modeling or certification will change this until we are able to control our level of greed. The irony is that man by default is selfish and the game of finance is a zero sum game. The billions have not disappeared as posited by one poster. It is just that some people have made a lot of money whilst some lost a great deal at the same time.

deenee: We are all to blame for the crisis

No amount of qualification, quantitative modeling or certification will change this until we are able to control our level of greed. The irony is that man by default is selfish and the game of finance is a zero sum game. The billions have not disappeared as posited by one poster. It is just that some people have made a lot of money whilst some lost a great deal at the same time.

Dozen Likes

violent:


Greed, not Quants, caused the market to go "ca-boot"! It's completely unfair and nonsensical to blame quant guys for the world's greed! and note: Greed is not bad in itself, that's why it's always a zero sum game. While millions may have lost their entire life savings from the market that went "ca-boot", others have been made billionaires by it and are simply eagerly waiting for the next drawdown!..This may not be fair nor ethical, it's simply the way of the Jungle and for these people, Greed is King!

If you really think taking the CFA would make any difference, then you are in for a shocker! The CFA is regarded by many people as a qualification that is only good enough to impress clients. There's nothing better on a a marketing document than saying "Your investments are being managed by 20 CFA holders" ...it's all a gimmick, mostly for the uninitiated wealthy who just need some form of reassurance.

The world can only get greedier, not less, most desks would keep hiring people who can design models that will pass on the risks of a trade to the "other" guy while they keep the returns to themselves. Since the CFA does not teach how to do this, it is only a matter of time before no one cares about how much fundamental analysis you can do or how much ethics you have and the focus will be how greedy can you get and how well you can design models that will keep us afloat while the other guys get smoked. This is where the intellectual prowess of Phds and Quants come in!

This is where the intellectual prowess of Phds and Quants come in


Lool, mean boy...Don't let the CFA folks hear this O..dem go fight gidigbo with you. Why trivialize their achievements.

T22

violent:

If you really think taking the CFA would make any difference, then you are in for a shocker! The CFA is regarded by many people as a qualification that is only good enough to impress clients. There's nothing better on a a marketing document than saying "Your investments are being managed by 20 CFA holders" ...it's all a gimmick, mostly for the uninitiated wealthy who just need some form of reassurance.

The world can only get greedier, not less, most desks would keep hiring people who can design models that will pass on the risks of a trade to the "other" guy while they keep the returns to themselves. Since the CFA does not teach how to do this, it is only a matter of time before no one cares about how much fundamental analysis you can do or how much ethics you have and the focus will be how greedy can you get and how well you can design models that will keep us afloat while the other guys get smoked. This is where the intellectual prowess of Phds and Quants come in!

am sure you are aware of the loan problem in nigeria a couple of yrs back.

The likes of dangote and co owing many banks in nigeria billions of naira and they refused to pay until the CBN stepped in

Am sure one stu.pid geek would have felt like a star when he used his intellectual prowess to design some default probabilites for these individuals and come out with very sexy positive numbers

yet these banks nearly went under

it is only a foo.l that will believe in mathematical models instead of sound fundamental anaylsis and good old human instinct

candylips:

am sure you are aware of the loan problem in nigeria a couple of yrs back.

The likes of dangote and co owing many banks in nigeria billions of naira and they refused to pay until the CBN stepped in

Am sure one stu.pid geek would have felt like a star when he used his intellectual prowess to design some default probabilites for these individuals and come out with very sexy positive numbers

yet these banks nearly went under

it is only a foo.l that will believe in mathematical models instead of sound fundamental anaylsis and good old human instinct

Sorry bro, but we may have been looking at these things from different angles.

It is my opinion that real "geeks" are not employed to deal with ol boring stuffs like default probabilities, VAR and all that ish!...that's pretty darn waste of talent. Probably common only in commercial and central banks.

Many geeks are hired to write algorithms, trade triangular and multiple arbitrages, quantify and trade headwinds, Gamma scalp etc etc.

sniffing around balance sheet statements and estimating probability of default is still the job of a fundamental analyst, and guess what? they all get it wrong most of the time!

Fundamental analysis is crap! many people continue to live with the grand delusions that they can estimate just how fast or how well a company can grow within a certain time frame. They get paid fat salaries for doing so and they still make weather forecasters look pretty darn smart!

I stupidly bought a stock (Chemring Group) a little over a year ago when it sold for about 7 pounds after reading stock research from some of the best paid fundamental analysts who all penned the stock as "overweight"...guess what? the damn shyt is now selling for 3.08 pounds and the bastards only just recently changed their recommendations.

I'd give my money any day any time to a PHD who knows how to trade volatility like a fanatic than the dude who thinks he's got some special talents to pick up some of the most hidden details from a balance sheet!....they must think accountants that were being paid thousands to hide those details are i[i]d[/i]iots.

deenee: We are all to blame for the crisis and I will say without doubt that we are in it for the long haul if we don't change our mindset. No doubt, "models" are good for forecast, sensitivity and scenario analysis purposes. My question is can they really quantify how far
a man's "avarice" will take him?


[b]I recently watched the infamous video clip of "Mr Integrity" [/b]stuffing wads of dollar bills into his hat and at that very moment I asked myself certain questions? At what price? This is someone who has been in the house for 13 years and makes an estimated 1/4 of a billion naira in allowances per year and is rumored to be a favored candidate come 2015. Models are as good as the level of the avarice of the individual that develops them. It is this avarice that compelled Citibank to rack up billions of worthless credit swaps because the models predicted them to be a good investment, even when the crisis was at its peak.


No amount of qualification, quantitative modeling or certification will change this until we are able to control our level of greed. The irony is that man by default is selfish and the game of finance is a zero sum game. The billions have not disappeared as posited by one poster. It is just that some people have made a lot of money whilst some lost a great deal at the same time.

really?

lololo5: @T22 and Deenee thanks for ur contribution,I will put in my best for dis job.....it seems to be d last resort....GOD bless D two of u abundantly....

Hi,thanks

Hope your interviews and assessments all went well and hope you did not encounter any difficulties or something different from what you envisaged?

All the best!

T22.

violent:

Sorry bro, but we may have been looking at these things from different angles.

There are always 2 sides to the coin

violent:
It is my opinion that real "geeks" are not employed to deal with ol boring stuffs like default probabilities, VAR and all that ish!...that's pretty darn waste of talent. Probably common only in commercial and central banks.

Many geeks are hired to write algorithms, trade triangular and multiple arbitrages, quantify and trade headwinds, Gamma scalp etc etc.

There two types of geeks. maths geeks and computer geeks

computer geeks do the algo stuff. but maths geeks are more concerned about mathematics

There are very rare species of humans that have the ability to combine maths n computer geekiness

Most times you are very brilliant in one and suck or average in d other.

violent:

sniffing around balance sheet statements and estimating probability of default is still the job of a fundamental analyst, and guess what? they all get it wrong most of the time!

Fundamental analysis is crap! many people continue to live with the grand delusions that they can estimate just how fast or how well a company can grow within a certain time frame. They get paid fat salaries for doing so and they still make weather forecasters look pretty darn smart!

I stupidly bought a stock (Chemring Group) a little over a year ago when it sold for about 7 pounds after reading stock research from some of the best paid fundamental analysts who all penned the stock as "overweight"...guess what? the damn shyt is now selling for 3.08 pounds and the bastards only just recently changed their recommendations.

i agree with u on this one.

balance sheet analysis has now become so complex with a lot of stuff hidden off balance sheet that it is almost pointless justifying a decision solely on fundamental analysis

This is were our God given instint [/b]comes in .

My former boss has this famous quote. [b]All models are wrong

violent:

I'd give my money any day any time to a PHD who knows how to trade volatility like a fanatic than the dude who thinks he's got some special talents to pick up some of the most hidden details from a balance sheet!....they must think accountants that were being paid thousands to hide those details are i[i]d[/i]iots.

Even Noble Price winners Merton and Scholes who where board members of LTCM coulndt prevent the hedge fund from sensational collapse.

For those reading who don't know about the hedge fund called LTCM

Read about it here http://en.wikipedia.org/wiki/Long-Term_Capital_Management

or this book

When Genius Failed: The Rise and Fall of Long Term Capital Management

http://www.amazon.co.uk/When-Genius-Failed-Capital-Management/dp/1841155047/ref=sr_1_1?s=books&ie=UTF8&qid=1329388160&sr=1-1

candylips:

There are always 2 sides to the coin



There two types of geeks. maths geeks and computer geeks

computer geeks do the algo stuff. but maths geeks are more concerned about mathematics

There are very rare species of humans that have the ability to combine maths n computer geekiness

Most times you are very brilliant in one and suck or average in d other.



i agree with u on this one.

balance sheet analysis has now become so complex with a lot of stuff hidden off balance sheet that it is almost pointless justifying a decision solely on fundamental analysis

This is were our God given instint [/b]comes in .

My former boss has this famous quote. [b]All models are wrong



Even Noble Price winners Merton and Scholes who where board members of LTCM coulndt prevent the hedge fund from sensational collapse.

For those reading who don't know about the hedge fund called LTCM

Read about it here http://en.wikipedia.org/wiki/Long-Term_Capital_Management

or this book

When Genius Failed: The Rise and Fall of Long Term Capital Management

http://www.amazon.co.uk/When-Genius-Failed-Capital-Management/dp/1841155047/ref=sr_1_1?s=books&ie=UTF8&qid=1329388160&sr=1-1

Candylips, I agree with you as regards the nature of models and your thoughts regarding comments made by Violent. Violent, I tend to think that you are trying to spur further arguments which for the purpose of this forum is healthy. The problem with most formal trainings in quant finance/financial engineering (which I also went thru) is the thinking that models are a perfect representation of a rather unpredictable market driven by irrational behavioral biases of participants. This myopic view of and absolute faith and trust in the "omnipotence" of models is one of the major causes of the financial crisis which the global economy has yet to recover till this day. One of the greatest quant of our time whom I respect so much is Paul Wilmott. Incidentally, he is the first to tell any modeler that models are at best an approximation of reality and can go wrong even when the assumptions may seem robust. I do not expect any serious finance professionals (including quants) of today to follow the way that almost brought the end of the global market. The crisis has taught all of us valuable lessons that should remain with us as long as the memory of the crisis lingers in our minds. To critics of fundamental analysis, I should point out that it is not just picking up annual reports and calculating ratios from information that were smartly manipulated by accountants and fitted to management objectives. Somebody mentioned off balanced sheet events which include contingent liabilities and events happening after the balance date; these information are incorporated in fundamental analysis. What then is fundamental analysis? In summary, fundamental analysis is all about determining the intrinsic value of an investment which is not an exact science but subject to the analyst judgments and conclusions after a thorough and exhaustive analysis which goes beyond a company's annual report to even trying to unravel accountants' intentional and unintentional misstatement of reports. Fundamental analysis is a whole gamut that is way beyond financial analysis and ratios. It even involves corporate governance and risk management. So there is no guarantee that the analyst using fundamental analysis is right because like all models, it is an approximation of reality that can go wrong.

Nice thread.

RixExpat:

Candylips, I agree with you as regards the nature of models and your thoughts regarding the comments made by Violent. Violent, I tend to think that you are trying to spur further arguments which for the purpose of this forum is healthy. The problem with most formal trainings in quant finance/financial engineering (which I also went thru) is the thinking that models are a perfect representation of a rather unpredictable market driven by irrational behavioral biases of participants. This myopic view of and absolute faith and trust in the "omnipotence" of models is one of the major causes of the financial crisis which the global economy has yet to recover till this day. One of the greatest quants of our time whom I respect so much is Paul Wilmott. Incidentally, he is the first to tell any modeler that models are at best an approximation of reality and can go wrong even when the assumptions may seem robust. I do not expect any serious finance professionals (including quants) of today to follow the way that almost brought the end of the global market. The crisis has taught all of us valuable lessons that should remain with us as long as the memory of the crisis lingers in our minds. To critics of fundamental analysis, I should point out that it is not just picking up annual reports and calculating ratios from information that were smartly manipulated by accountants and fitted to management objectives. Somebody mentioned off balanced sheet events which include contingent liabilities and events happening after the balance date; these information are incorporated in fundamental analysis. What then is fundamental analysis? In summary, fundamental analysis is all about determining the intrinsic value of an investment which is not an exact science but subject to the analyst judgments and conclusions after a thorough and exhaustive analysis which goes beyond a company's annual report to even trying to unravel accountants' intentional and unintentional misstatement of reports. Fundamental analysis is a whole gamut that is way beyond financial analysis and ratios. It even involves corporate governance and risk management. So there is no guarantee that the analyst using fundamental analysis is right because like all models, it is an approximation of reality that can go wrong.

Like Candylips pointed out, every would-be quant and serious finance professional should read "When genius failed:The rise and fall of Long Term Capital Management - LTCM". Each time I pick up that book (at least I have read it twice),I am moved emotionally at how the bests of the bests the market has produced could have fallen prey to the market. But, why not, the market can remain irrationally longer than any single or group of individuals. In essence "the market is always correct" whereas individuals can fall prey to its unpredictability.

There two types of geeks. maths geeks and computer geeks

computer geeks do the algo stuff. but maths geeks are more concerned about mathematics

There are very rare species of humans that have the ability to combine maths n computer geekiness

Most times you are very brilliant in one and suck or average in d other.

I dare say this opinion is not completely accurate!..Maths and Programming are inseparable! If you are employed as a "Quant" in most financial houses, the knowledge of programming is requisite (in the very least VBA)!..You can't simply claim to be good at mathematics. Anyone can have great maths ideas, but the most important part of your job as a mathematician is being able to bring your ideas into a portfolio in a way that maximizes the risk-return trade off. Of what good is anyone that can only work out algebra on paper? Get on Matlab son!

Even Noble Price winners Merton and Scholes who where board members of LTCM coulndt prevent the hedge fund from sensational collapse.

For those reading who don't know about the hedge fund called LTCM

Read about it here http://en.wikipedia.org/wiki/Long-Term_Capital_Management

or this book

When Genius Failed: The Rise and Fall of Long Term Capital Management

http://www.amazon.co.uk/When-Genius-Failed-Capital-Management/dp/1841155047/ref=sr_1_1?s=books&ie=UTF8&qid=1329388160&sr=1-1

Hedge Funds fail, it is the risk you bear for the returns you get!...But history has shown that 86% of fund mangers who pick their stocks based on fundamentals always fail to beat the market anyway. Despite this people employing dozens of accountants and CFAs to sniff through financial statements! This probably further highlights why wall street Giants like Goldman Sachs fail to commit so much resource to fundamental stock picking like they do on their Quant stuff...and people wonder why they just don't seem to ever get broke.

RixExpat:

Candylips, I agree with you as regards the nature of models and your thoughts regarding comments made by Violent. Violent, I tend to think that you are trying to spur further arguments which for the purpose of this forum is healthy. The problem with most formal trainings in quant finance/financial engineering (which I also went thru) is the thinking that models are a perfect representation of a rather unpredictable market driven by irrational behavioral biases of participants. This myopic view of and absolute faith and trust in the "omnipotence" of models is one of the major causes of the financial crisis which the global economy has yet to recover till this day. One of the greatest quant of our time whom I respect so much is Paul Wilmott. Incidentally, he is the first to tell any modeler that models are at best an approximation of reality and can go wrong even when the assumptions may seem robust. I do not expect any serious finance professionals (including quants) of today to follow the way that almost brought the end of the global market. The crisis has taught all of us valuable lessons that should remain with us as long as the memory of the crisis lingers in our minds. To critics of fundamental analysis, I should point out that it is not just picking up annual reports and calculating ratios from information that were smartly manipulated by accountants and fitted to management objectives. Somebody mentioned off balanced sheet events which include contingent liabilities and events happening after the balance date; these information are incorporated in fundamental analysis. What then is fundamental analysis? In summary, fundamental analysis is all about determining the intrinsic value of an investment which is not an exact science but subject to the analyst judgments and conclusions after a thorough and exhaustive analysis which goes beyond a company's annual report to even trying to unravel accountants' intentional and unintentional misstatement of reports. Fundamental analysis is a whole gamut that is way beyond financial analysis and ratios. It even involves corporate governance and risk management. So there is no guarantee that the analyst using fundamental analysis is right because like all models, it is an approximation of reality that can go wrong.

Yes you are correct!..Models are an estimation, but what makes them useful above all else is the fact that they are completely devoid of emotions or the typical herding behavior humans are hard wired to follow. Ask any wall street analyst worth his salt to give you a detailed analysis of the market crash and property bubbles and you'd be surprised at the genius of such fellow's views, you shouldn't also be surprised if the same fellow tells you next year about why gold must have been overpriced this year ---Humans he?.. we only seem to know so much about the events after the events had actually taken place, models don't work that way!

...i have met fund managers who bought stocks because they have a friend who worked at the company, ignoring all common sense in the process of doing so!

Sound mathematical trading models at least understand that the market can stay inefficient for short terms and individuals can profit from such opportunities. Mathematical models can at least understand that maintaining a delta neutral portfolio while trading gamma effectively can be a smart way to profit from swinging markets --- which always swings as someone is always thinking "OMG, Europe is going burst" "North America is getting downgraded again" "China is going broke" "The world is gonna end and we are all gonna die" --- All these sentiments will always bring inefficiencies to the market and the smart quant alogs --- that have been designed by some cursed kids, to trade millions of positions with micro ticks-- will keep bringing in profits to their owners!