Jeff  Carter
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From the book Atlas Shrugged. It’s required reading in my house.

“He didn’t invent iron ore and blast furnaces, did he?”

“Who?”

“Rearden. He didn’t invent smelting and chemistry and air compression. He couldn’t have invented his Metal but for thousands and thousands of other people. His Metal! Why does he think it’s his? Why does he think it’s his invention? Everybody uses the work of everybody else. Nobody ever invents anything.”

She said, puzzled, “But the iron ore and all those other things were there all the time. Why didn’t anybody else make that Metal, but Mr. Rearden did?”

Part One, Chapter Nine.

Growth In The Financial Markets Starring the Quants

Was talking to someone yesterday about growth in financial markets. How do we get more growth? The Captain Obvious answer is innovation. But what will innovation look like? Where is that growth going to come from?

Venture capitalists are placing bets on various industries. Nanotechnology, bioengineering, and other high tech stuff like that. This kind of investing though is simply blocking and tackling analysis, then hoping that you are right and the team you picked executes like heck so you can make some money.

The core of big data is variance.

Variance is the spread of the standard distribution. Larger variance means a larger spread. Or, in layman’s terms the larger the variance, the more uncertain we are of an outcome.

If big data is processed and analyzed correctly, that changes. Variance should shrink, and our decision making should be a lot less random. But what does that look like in actual practice?

In financial markets, it should mean that the options market will grow exponentially. Because of the preciseness of data analysis, options are a far less risky way to test a market hypothesis than an outright futures ETF or stock trade.

The advent of quants in the financial business is a relatively new phenomena. It’s only been the past fifteen years that quants have had a big effect on the business. So far, quants have concentrated primarily on the big markets; equities, futures, ETF’s, equity options. It’s where the lion’s share of money is.

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Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.