Quarter Life Crisis

As a result of some of the disastrous hedge fund performance from the last few weeks, we’re starting to hear whispers about whether quantitative strategies are really viable or not.  If you don’t know what a quant fund is, this about sums it up:

“The models replace instinct. They try to turn historical trends into predictive science, using elegant mathematics seemingly above the comprehension of your average 401(k) participant or Wall Street fund manager.”

The kind of people these quant based hedge funds hire to develop these models:

“Instead of veteran, market-savvy traders waving fistfuls of sell slips, the elite quant funds employ Nobel nerds with math PhDs, often divorced from the real world. It’s not for nothing that they are called “black-box” funds — opaque to outsiders, the boxes contain investment magic understood by only the wizards who conjured it up.”

Must be a tough time to a be a quantitative analyst! More here.

Barron’s had a good article about the always entertaining James J. Cramer of CNBC’s Mad Money.

Jim is a very smart guy with a Harvard Law degree, a stint at Goldman Sachs, and a successful hedge fund. However, can we really make steady and consistent money by shorting Cramer’s picks?

I can’t imagine that other hedge funds aren’t doing that. Furthermore, this simple shorting strategy can probably be broadly applied to other stock recommendation shows, articles and newletters due to the trend that most stocks in the spotlight jump the next day, moving sideways or down in the following days after the intial “pop.”

On another note, Jim Cramer’s Confessions of a Street Addict looks like a good read.

I think quarter life crisis is an apt name in that at ~25 years of age (assuming you live 100 years) many people don’t know what to do with their lives. Most people have not found a job or field that they would like to be involved with. Warren, myself, and many of our friends & colleagues are in this situation. We are always on the lookout for something that piques our interest. At this age we are young enough to change careers and pick up new things quickly, yet old enough to have completed undergrad/grad education as well as some job experience.

 I’ve been studying for the CFA level 1 exam being administered this coming December. It is made up of 5 main topics:
Ethics and quantitative methods
Economics
Financial statement analysis
Corporate finance, analysis of equity investments, and portfolio management
Fixed income, derivatives, and alternative investments

I am currently on the 3rd topic, financial statement analysis, which is extremely dry and boring. The first two topics are straightforward but provides a lot to memorize. Ethics is memorization, quant methods is formula memorization and calculations (you need to learn how to use the TI - BAII Plus calculator), and economics is a mix of micro and macro. My interests lie in the 5th topic of fixed income, derivatives, and alternative investments.   

Studying and stressing has led me to thinking about the Stress Eraser product, which warren mentioned previously. It definitely looks promising. I may get it. However, a cheaper alternative is Classical Music and Slow, Deep Breaths.

As of today, Gary will be a contributor to the Quarter Life Crisis blog. Like me, he’s a recent grad trained as an engineer in search of an alternative career where he could leverage his technical background.

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