“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.