I came across this insightful documentary today entitled Quants: The Alchemists of Wall Street. It explores the problems with financial models and how certain assumptions were made that did not account for fluctuating risks of human behavior. A striking point that many in the financial world fail to realize is that the world does not operate in a linear fashion; most certainly asset prices, given its volatility. The fact is that things change, and big firms that relied on these models failed to adapt during times of diminishing returns.
This is one reason why there's beauty in trading that many continue to bash. Ask an economist or large investor their outlook on the economy. Chances are you get a fixed prediction, something linear. They might say that the Japanese Yen is at risk to any natural disaster (prior to its rally following the recent earthquake..didn't see that one coming), or look in their little historical calendar book and say now is the time for the Dow to rally because it did so on this day for the last two years. We learn in school the difference between opinion and fact, and professionals exploit this to making any argument a fact so long as its backed by a number, no matter the reliability. Trading allows us to speculate on the given. Dantes Outlook's Global Fund (starting this April) may have an outlook, but it's constantly adjusted as it measures the mood of the marketplace. With that thought, take heed to what's explained in this short film. Enjoy.
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