For most of us who are uninitiated in modern computer slang, terms like quants or algorithms are completely foreign.

The former came into use in the 1980s, and means the application of mathematics in analyzing investments; algorithms are a set of rules for the utilizations or problem-solving computers.

In the previous decade money managers relied on “quants” to profit from market changes. However, since 1990 that dependence led to several years of poor performance.

Money managers have been mesmerized for years by the hope of a magic formula that would lead to market success. They talked about “crossover levels” where stock trends were a forerunner of significant moves to come, and “momentum speeds” where it was hoped that a trend underway would continue to what were termed as “breaking points,” where shares moved out of long-terms channels. All this strikes this columnist as so much noise.

These gimmicks have proved to be not money-making for several years. Common sense should prevail. Graphs cannot appear on charts or computers to predict automatically the future, as has been shown again recently.

Ever since the stock market debacle in the previous decade, some investors/speculators have been searching for new ways to make money.

The trouble, certainly, with any of these strategies is not the fault of mathematics-quants, but with the irrationality of the market itself. Politicians and central bankers have managed to upset old formulas. Ultimately, who can predict the positions taken by politicians. After all, what could be less rational than the conduct of a president who invaded Iraq, despite assurances that Hussein gave to former president Jimmy Carter that Iraq would voluntarily leave Kuwait?

Then too President Barack Obama hoped his medicare legislation of 2,000 pages would solve the health-care problem. Leaving aside the antics of Toronto’s mayor, irrational behaviour should be acknowledged as the new norm.

Still, the believers in quants remain hopeful that, despite repeated failures, quants enthusiasts believe that they will be vindicated this time. Good luck!

The trouble, of course, is that as George Santayana wrote, “Those who forget the past are condemned to repeat it.” History reveals that of chart watchers over the long-term. History shows that flooding the financial system with paper money as the Federal Reserve Board has done eventually destroys the economy.

We are on a path that never works in the long run. Quants notwithstanding, let us resort to more common sense.



Bruce Whitestone