"Beware of geeks bearing formulas."
--Warren Buffett
In March of 2006, the world's richest men sipped champagne in an
opulent New York hotel. They were preparing to compete in a poker
tournament with million-dollar stakes, but those numbers meant
nothing to them. They were accustomed to risking "billions."
At the card table that night was Peter Muller, an eccentric,
whip-smart whiz kid who'd studied theoretical mathematics at
Princeton and now managed a fabulously successful hedge fund called
PDT...when he wasn't playing his keyboard for morning commuters on
the New York subway. With him was Ken Griffin, who as an
undergraduate trading convertible bonds out of his Harvard dorm
room had outsmarted the Wall Street pros and made money in one of
the worst bear markets of all time. Now he was the tough-as-nails
head of Citadel Investment Group, one of the most powerful money
machines on earth. There too were Cliff Asness, the sharp-tongued,
mercurial founder of the hedge fund AQR, a man as famous for his
computer-smashing rages as for his brilliance, and Boaz Weinstein,
chess life-master and king of the credit default swap, who while
juggling $30 billion worth of positions for Deutsche Bank found
time for frequent visits to Las Vegas with the famed MIT
card-counting team.
On that night in 2006, these four men and their cohorts were the
new kings of Wall Street. Muller, Griffin, Asness, and Weinstein
were among the best and brightest of a new breed, the "quants".
Over the prior twenty years, this species of math whiz
--technocrats who make billions not with gut calls or fundamental
analysis but with formulas and high-speed computers-- had usurped
the testosterone-fueled, kill-or-be-killed risk-takers who'd long
been the alpha males the world's largest casino. The quants
believed that a dizzying, indecipherable-to-mere-mortals cocktail
of differential calculus, quantum physics, and advanced geometry
held the key to reaping riches from the financial markets. And they
helped create a digitized money-trading machine that could shift
billions around the globe with the click of a mouse.
Few realized that night, though, that in creating this
unprecedented machine, men like Muller, Griffin, Asness and
Weinstein had sowed the seeds for history's greatest financial
disaster.
Drawing on unprecedented access to these four number-crunching
titans, "The Quants "tells the inside story of what they thought
and felt in the days and weeks when they helplessly watched much of
their net worth vaporize - and wondered just how their mind-bending
formulas and genius-level IQ's had led them so wrong, so fast. Had
their years of success been dumb luck, fool's gold, a good run that
could come to an end on any given day? What if The Truth they
sought -- the secret of the markets -- wasn't knowable? Worse, what
if there wasn't any Truth?
In "The Quants", Scott Patterson tells the story not just of these
men, but of Jim Simons, the reclusive founder of the most
successful hedge fund in history; Aaron Brown, the quant who used
his math skills to humiliate Wall Street's old guard at their
trademark game of Liar's Poker, and years later found himself with
a front-row seat to the rapid emergence of mortgage-backed
securities; and gadflies and dissenters such as Paul Wilmott,
Nassim Taleb, and Benoit Mandelbrot.
With the immediacy of today's NASDAQ close and the timeless power
of a Greek tragedy, "The Quants" is at once a masterpiece of
explanatory journalism, a gripping tale of ambition and
hubris...and an ominous warning about Wall Street's future.
"From the Hardcover edition."
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