Quantitative analysis is a puzzle without a solution. There is no exact quantitative solution to investment as it is a social behavioral problem. Even approximations can fail spectacularly a la LTCM.
Soros refers to the socio behavioural dynamic in markets as reflexivity.
Investing, trading, allocating risk etc. are all processes with the same desired end state, maximum terminal wealth. As Charlie Munger says it is important to understand things from multiple frameworks. Quantitative analysis can be one of those frameworks.
Many cringe at the phrase quant as its conjures images of Nobel prize winning economist types creating belief systems (models) that cost tax payers money...cough cough (securitization ratings). Quantitative approaches should be taken with a large pinch of salt. If they appear merely descriptive as opposed to explanatory run away.
If a quant approach doesn't have a causal driver that is behavioral it is probably flawed and never ever believe the "with enough leverage" it works lie.
If you aren't familiar with quantitative approaches then try reading Chan's Book first. It is one of the few books sitting usefully between the "pick the right moving average and win the lottery crowd" and the "if these 5 impossible assumptions about execution, the risk free rate etc. hold true then X....academics".
With time a practitioner can learn something from both camps even about purely fundamental investing or enough to stay away from quants at parties.
Being able to quantify and qualify investment processes is important to understanding them. The trick is not to believe one has total understanding. Humility is key whether fundamental value/growth or quantitative asset allocator/trader. Humility in applying the process aids the outcome.
Qwaf a few
In New York, Boston, Chicago and Connecticut there is a group of people who meet monthly in bars to discuss quantitative findings in finance called Qwafafew. say it out loud and it makes sense. Say it on the way to a bar and it makes even more sense.
The meetings are held monthly involving bar food, a few drinks, some bad jokes and a presentation or two from a practicing quant professional. One of the best things about the meetings is the atmosphere. Give and take, thrust and parry of ideas in a bar setting. The pretensions of academia are relaxed enough so that the critical practitioner can throw or yell a few barbs and the presenter can rebut. This makes for bad theater but great potential learning.
I highly recommend joining the linked in group or e-mailing Herb. Attend a meeting, best case you learn something or meet some one who knows something. Worst case you just paid $50 for some hot wings and bad jokes about co-variance stability failure.
Here are some power point slides from a recent New York meeting presented by O'Shaugnessy Asset Managment's ($4b under management) Founder
The first slide shows an optimistic view of equities based on rolling 20 year returns. If equities return 6% going forward, the rolling returns will equate to the same level seen after the great depression. I don't agree or disagree with the data, just wanted to give an example of a Quafafew presentation.
The second slide highlights the returns from purchasing the cheapest
10% Price to Sales shares vs the top 10% price to sales shares. I
believe the data were controlled for survivorship bias, but contact
O'Shaugnessy to be sure as this kind of study has huge potential for
survivorship bias skew.
