When Genius Failed - A word of warning to those still in education

I agree.

I think there is a difference between academia and practice for sure. For instance, in academia many of the theories use assumptions which are not based on reality. Though there may be a great level of intellect in academia, I find many of them to suffer from tunnel vision by failing to accept certain realities, and rather hide behind the alternate universes they create in their theories, case studies, etc.

Whereas the businessman in the real world deals with those realities, and profits.

All of mathematics just tells you what happens after you accept a certain set of axioms, rather than representing some absolute truth. Even the businessman's mental model is just a model. It seems if you're going to have a mental model, you might as well figure out all of its ramifications so you can follow it consistently, rather than just following some businessmanly gut feelings.

I think the key is recognizing when your model is diverging unacceptably from observed reality and then cutting your losses and reformulating -- which is the opposite of what those in WGF did, they doubled down as reality was slipping out from under them (also some of them actually believed in efficient markets, and I don't know how anyone can seriously believe that)

(Then again, we have several stories of doubling down on a losing bet and winning in the literature, and everyone wants to be a contrarian hero)

I get your point, but I'd suggest that the vast majority of evidence suggests that dropping out of school is the key to massive success.

EQ > IQ by far.

Agree with this quote from braverman

"EQ > IQ"

Entirely true. Have said it before but if you can tap into someone's psyche (selling) you'll be just fine in the long-term.

Edward Bernays would be wealthy today as he would 100 years from today.

Meh, David Einhorn was summa cum laude and he is still a badass.

Those who can't do, teach. Or something like that. I think a lot of kids, at least that I know, hide out in education as long as possible because it avoids having to go out and actually put up or shut up. The key difference between those who continue on with education and those that drop out is that those who drop out just go do it. They try their idea to see if it works rather than wax philosophically about whether or not it will work, how it will work, model it, write a thesis on it etc. The problem becomes you can say that something works theoretically as much as you want, but unless every single element is a rational actor who behaves perfectly and everything falls as it should it won't hold up in the real world.

It is a sexy idea that to be successful you need to buck the trend and drop out of school, but I think it is more of having the balls to actually act on something when you discover the opportunity. That is a combination of EQ, IQ and circumstance (luck).

This is the reason to why I am taking philosophy as a major instead of finance. At least it would perfect my thinking function.

Back on topic to method vs model though; while I think math is practical it does make some people too confident. Believe it was Paul Samuelson who said (arrogantly) "Those who can, do science, others do methodology".

And Whitehead coined the term "fallacy of misplaced concreteness". Idea of mistaking a model for the physical entity that it represents.

I think the take-away here is, do well in school because it's a key contributor to GETTING the job, but then just learn what you need there because that's what's key to KEEPING it. I will say this though, it really is best to realize this AFTER you get started, cuz it's damn hard to stay motivated when you feel like you're pumping useless, unapplicable bullshit into your head.

Who' MS'ed me? I had a SB before :(

My first post so be kind;

I believe that the discussion is slightly muddied; School is excellent to establish confidence in one's fluid intelligence (ability to be innovate, e.g. fix a toilet with a toothbrush) (marked difference from improving it), whilst also providing a platform to develop EQ and crystalised intelligence (knowledge).

There is a diminishing return though, where eventuallly the marginal increase in 'confidence built' in fluid intelligence declines, but the crystallised intelligence continues to increase, resulting in the 'silo' mentality, as this element increases, the marginal rate of EQ development declines (i.e. there's social/institutional politics even at the academic level, however it's not as leaned on as within business).

The main reason why I think most Genius' fail is because they assume their fluid intelligence and EQ are increasing (or developing if you will) with their crystallised intelligence, meaning that whatever models they are using become more effective, when in fact the only their models only become more self-consistent.

Taleb has covered this well in the Black Swan

The ludic fallacy is a term coined by Nassim Nicholas Taleb in his 2007 book The Black Swan. "Ludic" is from the Latin ludus, meaning "play, game, sport, pastime."1 It is summarized as "the misuse of games to model real-life situations."2 Taleb explains the fallacy as "basing studies of chance on the narrow world of games and dice."3

It is a central argument in the book and a rebuttal of the predictive mathematical models used to predict the future – as well as an attack on the idea of applying naïve and simplified statistical models in complex domains. According to Taleb, statistics works only in some domains like casinos in which the odds are visible and defined. Taleb's argument centers on the idea that predictive models are based on platonified forms, gravitating towards mathematical purity and failing to take some key ideas into account:

-It is impossible to be in possession of all the information. -Very small unknown variations in the data could have a huge impact. Taleb does differentiate his idea from that of mathematical notions in chaos theory, e.g. the butterfly effect. -Theories/Models based on empirical data are flawed, as events that have not taken place before for which no conclusive explanation or account can be provided.

http://en.wikipedia.org/wiki/Ludic_fallacy

I happen to be reading the book(WGF) right now.

Continually amazed at how naive they were, despite their intellectual genius.

Doubling down on losing bets?? (essentially not having an exit strategy) Assuming volatility is constant??

wtf were those guys thinking.

I watched a documentary on LTCM. It seems like they put way too much faith in their models. I feel like if they knew to stay on the side lines when things got weird they would have been very successful.

This is very true. I just did an internship at one of the Big 4 and received a full time offer upon graduation, but many of my peers haven't.

Not to brag about myself, but I was in a group for an assignment worth a MERE 2.5% and there were two technical (so no fuckin' discussion needed right?) questions and the two members (with no jobs in final year of Undergrad) wanted to meet up for three hours, have a skype meeting on Sunday and meet up again on the day it is due. For 2.5 fucking PERCENT!!!!

On the other hand, for a 10% assignment my other peer (who will be starting full time with me) and I spent literally two hours discussing the case and at the end decided that he will do the case write up for this assignment and I will do it for the next one. He brings a printed copy before class to hand in and we are done! Oh by the way this guy wrote is CFA level 1 after 2nd year of undergrad.

Another thing I hate is when students ask "Is this on the exam?" or "Do we need to know this for the exam?" What the fuck is wrong with them. If you are asking that question in a course that is part of your major; then you have not done a good job of picking your major. Because a Major is something you want to enter into depth not just fucking get a good grade on what the "Prof thinks you should know"

I don't think logical thought is something you teach - it's something you pick up from a wealth of experiences and the ability to perceive the world around you in a realistic way, rather than in the way it ought to be or in the way that might make the most logical sense on average and is simply theory.

The problem with theory is it's physically impossible for an equation or a law or constant or anything like that to encompass all variables related to a situation. Even in the example someone gave of games being the one situation where odds are fixed and theory can be applied... there's always too much out there in the practical world that you can't take into account in your model of the world. What if the dice fall of the table? What if they land precisely on their edge up against the edge and don't fall flat? What if some jackass runs up and steals them off the table mid-roll? Who wins in these situations? Obviously this sounds farfetched in the arena of a dice roll at a craps table because we know the casino has rules for what actually does happen in these situations, but in real life and especially in the financial markets there's nobody overseeing all these situations. Nobody factored 9/11 into their models when they went long the market in August 2001.

Like Kevin Spacey says, you always have to account for variable change... and that's something academia has a hard time being able to teach, and I don't blame them. It's to be learned on one's own time, or at least it's best learned that way. Talking about Kantian theory and other bullshit to help "refine the way you think" is horseshit. Call a spade a spade and try not to rely on a specific rule for everything you do in life, because no rules are ever going to be perfect and most are wrong to begin with.

Lots of interesting points buried within this thread hahaha...I am on a bad coffee cycle and battling insomnia this week so I am just going to rant.

Look, until we can conclusively do a universal study that removes survivorship bias, we can trade anecdotally example of people who are Wall Street legends that fit into whatever category we want to support our argument: Jim Simons (made brilliant advances in differential geometry, average WSO reader doesn't know what that even is , google Medallion returns) vs. Lewis Ranieri (made a killing for Salomon by inventing the MBS market with little more than a high school education) etc. This is fairly pointless. We can break this argument down into nauseating detail by making statements like "Obviously soft skills are more important in a large bank environment versus in a small fund eat-what-you-kill environment" for EQ and "Duh I wouldn't want a Harvard English major trading corridor variance swaps" for IQ or "But you can't quantify how much balls they have you pussy quant" and hence try to extrapolate more trend on subsets in our relationship between "academic prowess" and "success", both of which have pretty nebulous definitions if you examine it long enough.

My money is on that the view espoused closely mirrors the presenter's own personal experience/success story, and if we had this magical dataset we would all mine the shit out of it a zillion different ways to defend our thesis and criticize others' approach to mining if they didn't conform to our view. We're human.

To be more specific:

After being lucky enough to be in a job where I am exposed to a lot more frameworks to parse the world than most that work in finance, there are a few basic things I have noticed. Forgetting the sell-side (wonderful side of the industry I never got exposed to), here is my "model" for how you become wildly "successful" on the buy-side:

1) You discover a new risk premium and pass it off as alpha. 2) You predict the future correctly and call it alpha. 3) You make sure you don't overwhelm the nice little inefficiencies you have discovered with the money you have on hand. 4) You charge a lot of fees for the above and make your clients happy by sending them patient, thoughtful, beautiful, knowlegable client staff that gives you a nice revenue stream all the while running a tight shop etc. that showcase your amazing interpersonal skills (you are more charming than Lucifer and more confident than God)

You can find simple risk premia that are readily explainable through intuition that don' t require you to have Nobel Prize caliber academic research skills (small companies should be riskier than large companies because of relative lack of information, undiversified businesses, company growth stage blah blah etc.) or more mysterious premia (why does BSM implied vol come in higher than realized vol a lot of the time) that really do require nastier math to explain. Depending on the time period, I could have passed these things off as alpha if it isn't public knowledge; when they reverse, I look stupid. If they are more mathematical in nature, the people whom math is a foreign language to are especially gleeful, and I look even dumber than piling into a size premium bet.

I think it is an absurd endeavor to argue what framework or level of academic prowess allows you to divine the future correctly or even to find new risk premia faster than anybody else. Intuition about the future comes in an absurd amount of forms to both very academically talented and academically stunted people.

The other points require EQ and intangible skills.

How's this for a cowardly answer? No one knows what the optimal blend is, and we'll attribute the residuals of our magical formula to luck.