Book learnin’ vs. street smarts

Verrrry interesting article about where the market is, as we stand here poised at the edge of a very tall cliff. Will we tumble over? Stay tuned…

WTF’s going on with Wall Street anyway?  Is doom and gloom on the horizon, or will there be sunny skies? The titans of finance have accumulated wealth, aggregately as well as individually, on a scale that few of us can imagine, and even fewer of us are even privy to.

Feel left out?

When reality disconnects from fundamentals, we see something like what we have witnessed recently: the pseudoscience of modern portfolio theory becoming accepted practice, taught in business schools, “theoriticians” of this practice awarded prizes, and it’s “successful” proponents patting each other on the back, lighting expensive cigars, secure in the fact that risking other people’s money is no longer risky.

The writer, Nassim Nicholas Taleb, was “a trader and risk manager for almost 20 years” who seems to have been in a position to witness the application of economic theory of portfolio management into the market.

If you thought the success of the academics has been a slam dunk, well, when promotion goes unchallenged, the public impression formed doesn’t adequately reflect reality.

Some interesting points:

  1. There is no Nobel Prize for economics.
  2. Winners of the “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” include Robert Merton and Myron Scholes, the founders of Long Term Capital Management, which famously imploded.
  3. “the consequence of shielding men from the results of their folly is to create a world full of fools.” -Herbert Spencer

Hat tip to patrick.


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