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This is my diary....what I make sense of, around me. You'll find short prose on contemporary topics that interest me. What can you expect - Best adjectives? …. hmm occasionally, tossed around flowery verbs ?…. Nope, haiku-like super-brevity? … I try to. Thanks for dropping by & hope to see you again

August 6, 2008

Quant’ nomics

My world of small scale investing has gone topsy turvy, thanks to the turbulent markets and the daily Yo-Yo swings in the Sensex. 

Sometime back i relegated my basic instincts in picking and choosing stocks based on my style of analysis to a new breed of Mutual fund called the Quant fund. This fund promised ‘agility’ and promised an investment rationale based on computer simulated models purely based on numbers with a promise to better the Nifty performance. I said why not give it a try when it was backed by George Soros, a big name in the Investment world. 

Here was some kind of a financial robot I thought, that would crunch numbers in the most cold blooded way possible and invest without any bias or misplaced emotions. After all mathematics and its underlying number based logic is what drives our daily lives, be it the car we drive or the planes we fly or simply the computers we work on. 

That were the thoughts then, now as i sit back and look at the performance that this dear Quant friend has delivered sadly belies all my hopes and expectations. Sitting next to other ordinary mutual funds in my online investment portfolio, it has delivered me a 27.9% loss as against 10-15% loss of other run of the mill funds. No wonder, i pity myself like the countless suckers who fell into a similar mess called Derivatives, another quant product.

Relative performance of such quant products points to failure, but why? After all stock market is all about numbers and quantitative techniques like the one on which this mutual fund rested should have performed atleast better is my premise. As a wise guy after the event i have realized that financial markets are primarily driven by basic human emotion of Greed and fear that makes the Bulls run and bears dance on the bourses. 

Do Investment logic based on numbers hold fort when they are on the rampage? Most Investment pundits, like the ones you see on TV and read in Newpapers, argue that the macro fundamentals of our economy is strong and the market will find its feet soon. But this kinda argument is based on numbers like Corporate earnings, Infrastructure spending, credit flows & like but will it sway the investment logic of fear driven ordinary investor? 

As far as I am concerned, I have taken to reading Emanuel Derman’s book “Life as a Quant” to find some solace and search for inner meanings to a Life in numbers.
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