Available here:
Faith in any person or organization claiming to have a deep and intuitive grasp of market opportunities and risks is no better or worse than putting the same faith and money behind a mysterious black-box strategy. What matters in each case is the transparency of the process, an opportunity to assess the plausibility and limitations of the ideas on which a strategy is based, clarity about expectations for risks as well as returns, an alignment of incentives between the investment manager and the investor, and proper accountability for successes and failures. Part of the recent distrust of quantitative models is that they are inanimate, and therefore inherently difficult to trust. Even when we manage to develop a certain level of comfort with a quantitative strategy, ongoing due diligence is needed to assess the consistency, integrity, and incentives of the human beings responsible for implementing the strategy. It is important to distinguish our emotional needs from the formal process of assessing the models themselves, for which a degree of quantitative literacy will always be required.
Lo improves a number of arguments that long-time readers of B.S. may find familiar. I couldn't agree more with his conclusions.
For an extended discussion of the history of the crisis, I recommend Gillian Tett's Fool's Gold.
Comments