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"You can still be dead wrong as a quant, but you're dead wrong if the average result doesn't hold. (As an example, he said he recently declined Goldman Sachs's invitation to invest in Facebook at a billion valuation, which he considered excessive.) Quants sometimes speak about having found the Holy Grail of investing, the ability to construct vast portfolios of stocks that are nearly perfectly hedged--bets on value on one side, bets against momentum on the other--and that they believe should be, over the long haul, relatively immune to the market's increasingly violent vicissitudes.
" He continued: "A quant, on the other hand, has the ability to study thousands of stocks at once, and thus can hold much more broadly diversified portfolios.
Because quants hold so many stocks, ones that are even slightly misvalued may still make sense ...
"And a lot of times it's not even guys, it's just the computer running the machine. And though his experience--from academia to Wall Street to Greenwich--has been marked by recurring crises, and though he admits that no one can predict when the next big one will hit, he's more confident than ever in the power of data and mathematical models, in his hands, to beat the market consistently over the long term.
And, once again, the data are telling him he's right.
Although predictions of the death of AQR and its ilk, by the writer and investor Nassim Taleb, among others, turned out to have been greatly exaggerated, worries linger, even as some high-profile quants have surged back.
Taleb and the other critics think their overreliance on computers gives quants excessive confidence and blinds them to the possibility of seemingly rare economic catastrophes--which seem to be not so rare these days.
"It's this belief that it's all captured in mathematics and models." While quant investing remains a relatively small part of the financial world--perhaps 0 billion now, according to e Vestment Alliance, out of the tens of trillions of dollars invested worldwide--in their effect on professional investors, the quants punch well above their collective weight, because what they're doing is considered so cutting-edge. D.s eager to create models that might lead to the next great investing technology, and to personal fortunes.
Other investors can't help but take notice and try to emulate them.
The money his team managed fell to .2 billion in March 2009, from a peak of .1 billion in September 2007, as clients headed for the exits with what was left of their cash.
Such losses can be fatal for fund managers like AQR, since sophisticated investors pay them big fees for exceptional performance and, understandably, have little patience for anything less.
And AQR--which makes its fortune, like other quants, by using high-speed computers and financial models of extraordinary complexity--has made a stupendous recovery in the past two years.