The world of mathematics is populated by the haves and the have-nots. As an artist surrounded by other artists for many years, I can testify that most of us are terrified of even thinking about math. This is ironic because geometry used to play a vital role in painting. For example, the relationships in the composition of a painting used to be governed by the golden section, expressed by the simple and beautiful ratio a/b = b/(a+b). This golden ratio leads to the golden rectangle, which has the elegant property of infinite reproduction. Imagine a cake in the shape of the golden rectangle. With one slice of the knife, divide the aforementioned cake into two pieces, one of which is a square. The other piece has no choice but to be another golden rectangle, a mini-version of the original.
However, even without geometry, many artists are still able to produce beautiful works of art. Geometry has been set aside; analysis has been replaced by intuition.
The financial community is faced with a similar dilemma. Instead of geometry and the golden section, financial mathematics includes partial differentiation, Ito's Lemma, and other forms of advanced calculus. My question for the forum is this: Let's say I want to know whether stock A is undervalued. Do the quants offer a better way of answering this question than the financial analysts who don't use quantitative analysis? (I realize that options and other derivatives open the door to another discussion...) And does quantophobia, the fear of quantitative analysis by the non-quants, exist?
I believe Benjamin Graham, the god father of value investing, said "if you see a valuation/recommendation based on greek letters run a mile." I believe the fundamentals guys beat the quants for 2 reasons:
1) These quant models are based on a whole hash of assumptions that never hold up in the real world (no taxes/transaction costs, no restrictions on short selling, etc)
2) The use of fancy models has resulted in a reduction in the "margin of safety" that fundamentals guys employ. An old school value investor knows that he can't predict the future and so he applies a 20/30% discount to his estimate of a stock's worth. Valuation based on fancy models has led analysts to think they can accurately predict the future, which in reality they can't.
A lot of artists I know (or wannabes, they're not good/comitted enough to make it their livlihood) try to justify art and their outlook with flaky paralells to higher thinking in the left brain sphere.
Don't do that.
Art has it's own value completely seperate from math, and if there's an overlap, well that's cute, but math is NOT the justification or explanation for art. It's like justifying the value of a car to a fish along the lines of gas being a fluid just.like.water. Way to go on drawing a paralell, but you're wasting your time and devaluing your contribution.
INSTEAD, understand that artists bring a completely different set of things to the table, independant, and free standing. Artists typically are FAR SUPERIOR in evaluating the big picture, connecting across multiple channels with multiple avenues, and offering creative insight that others simply never would have conceptualized.
The best outlook is a balanced one, incorporating logic and creativity, and anyone can partake of both. It's often said that there's a ruling class and a working class...but there are others: the thinkers. I knew a gifted mathematician in college who was also an excellent musician and artist. I myself come from a VERY long line of high level artists and my father was a straigh laced engineer, so I was raised with both influences. Neither skill is better: without each other they are useless. Creative vision + applied logic = good ideas. It's that simple. Very small minded people feel the need to argue the superiority of one over the other, so free yourself of this influence.
I can offer this: creativity and logice work together. Too much insight too fast isn't practical, and the bean counters seriously have no perspective on life (just look at the narrow focus of this website). Understand that learning technical skills to the best of your ability and using that as the language for creative expression gives you a huge advantage. Applying some logic to creativity gives it form and function - this is important because the romanticized view of the starving artist who is ahead of their time does nothing for you NOW.
Also, realize that unless you're in a quant trading role or a programmer, the vast majority of jobs in finance could be done by a high schooler who applies themselves to mastering a few basics. This isn't rocket science. Just focus.
Do people have a fear of quantitative analysis, or are they just not smart enough?
From an investing standpoint, I agree. But I'm talking about people that are like, "I'm not good at math." Nobody is just good at math, analyzing numbers, things of that sort until they learn it. I think it's more appropriate to say, "I'm not smart enough to learn math."
If you must, the same could be said about the legion of quant nerds that will never talk to a client: they aren't smart enough to learn people skills. Considering the narrow band of pertinent H to H interaction in this business, it really isn't hard. Personally, my math/verbal abilities are both very high and almost perfectly balanced, so I always get a little annoyed with autistic quant jocks that need to insult those who don't share their fascination with the finer points of MatLab
If you have Quantophobia, talk to your doctor to see if PWM is right for you.
fancy math is a marketing tool for the sell-side to push products that THEY don't even understand.
Things like DCFs have value. They can be as simple or as complex as you want to make them, and there is a big difference between a good, conservative DCF and a shitty one based on unrealistic numbers. Some companies are also inherently more difficult to value than others (energy companies comes to mind) but that doesn't mean you shouldn't give it a shot. Sure anyone can tear a DCF apart in a matter of minutes but it's better than nothing.
These types of quant analysis are often used to make us/the consumer feel like we/they have some sort of control or understanding over what we actually don't, and even if they don't reflect real life, they are still valuable for that reason.
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