Quantitative vs intuitive in investing
Human decisions affecting the future, whether personal or political or economic, cannot depend on strict mathematical expectation, since the basis for making such calculations does not exist.
Uncertainty
Scatter shot estimates of fair value
A group with a high anchor were prepared to pay three times as much for the same wine as a group with a low anchor
Risk when markets are down
Here were financial people who could seriously consider that stocks are less safe because they have declined in price than they were after they had advanced in price
Loving lack of visibility
Things are almost never clear on Wall Street, or when they are, then it’s too late to profit from them.
Let’s cut to the heart of how risk and uncertainty impact diversification
Diversification is inadequate as a risk management technique and too primitive for the new environment of volatility and uncertainty.
Do quants with algorithms have an advantage over other investors?
Math and algorithms will give precise answers. And therein lies the problem.
Many investors just don’t understand the risk/reward trade-off
Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain.
The conventional view of market efficiency is badly mistaken
Prices in the stock market are never a reliable guide to the fair value of a stock.
Acting with imperfect information
It is all very good to recommend caution, but decisions must be made. In truth, many policies must be established and decisions made with imperfect understanding of the facts and of the risks.
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