Results and Ideas: Two Classical Putdowns
I spoke recently at a very academic conference. I usually prefer trader and fund events because of their focus on practical matters. But this was in a place that I'd never visited and so I accepted. My lecture began in the traditional way of academic events with the audience being a bit hostile in their questioning. Being an old hand at this, I told myself not to rise to their baiting, but to see if I could win them over. It was clear that they knew little of the markets and practical finance, and so my 'winning them over' took the form of gently pointing out certain realities, certain constraints, and how interesting this subject is precisely because it is not a science. Getting them on my side turned out to be rather easier than usual, the hostility of most of them evaporated once they became intrigued. However, one person in the audience was not impressed with my efforts. He used two very famous putdowns on me, one of them is common only in academic circles and the other common in all circles.
The academic putdown was used in response to me talking about possibilities of arbitrage and whether the exploitation of arbitrage would make it go away. The putdown is to simply say 'There is a result about that.' Now I'm perfectly happy with people talking about 'results in mathematics, in statistics, in particle physics, or in a hard science generally, but the use of the word 'result in the context of a discussion about quantitative finance says more about the person using the word than anything about the subject matter. Human beings have this annoying habit of stubbornly not obeying theoretical 'results (or indeed laws). As I keep saying, this subject is not a hard science and is somewhat more ephemeral than can be captured in a set of results.
So although saying 'There's a result about that' can be aggressive and arrogant it can also be very naive, suggesting that whoever says it believes that finance is equivalent to a set of axioms. It is not, and to believe that it is can be very dangerous. This putdown is best just laughed off.
The other putdown came while I was explaining strategies that may be exploited for profit. The putdown is the simple 'If this works then why are you telling us about it and not doing it yourself?' There are many responses to this including:
1. I don't have the ability to do it myself, this is my marketing pitch, want to back me?
2. Ideas are cheap, I know which ones are good or bad but not everyone can tell the difference.
3. Do you know all the barriers to entry? $1 million in lawyers fees to set up a fund, months of software writing, years of knocking on doors trying to raise money. Forget it!
4. This is a great idea, but I've got better.
5. I don't want to spend the rest of my life doing this, even if it is profitable, variety is the spice of life.
6. I did, and now I've retired or, more simply, I've got enough money already.
7. My lawyer/doctor/wife says I mustn't.
And many more...
I was expecting this putdown from the well-known academic (he of the 'results') because of what happened in his lecture, which was earlier in the day than mine. He was talking about his model for something or other and right at the end he made the throw-away remark, 'Of course, if this worked in practice I wouldn't be telling you about it. I confess to being shocked. (My turn to be naive!) This is a man who lectures on finance at a respected university, to students paying a lot of money, and here he was admitting that he lectures on things that do not work, that he keeps some of the good stuff to himself. Let me tell you that when I lecture, for example on the CQF, I keep nothing back (for at least one of the reasons listed above!). And unless I've signed some NDA, I will tell you everything.
-  This essay was first published on 10 June 2008.