Quant Funds and the August Meltdown

[ImBetterAtGolf]

What did it really say? Most of the quant funds are leveraged, but so is every bank and a vast number of other funds. Yes, there are some similarities between quant funds, and so too are there similarities within every class of fund. And, it's correct that they did have to deleverage when their equity shrank causing the ratio of assets/equity (leverage) to begin to rise too high. That's not much of an indictment; you could substitute almost any other type of fund here for "quant".

One thing that did happen was that on average these funds got more leveraged over the past few years, mostly because market volatility dropped. Otherwise, take out the references to "brainiacs", "MIT", "PhD", etc., and you don't have much. What am I missing?

[pig4bill]

I think the key problem with the quants is believing what the companies told them. Any program is no better than the inputs. Part of the inputs used to determine if a stock was "undervalued" were the financials. Many of the crappier financial stocks hid, and continue to hide, facts regarding their crappy CDO portfolios, et al.

Even now, they aren't disclosing what deep do-do they are in. However, the public knows better and is slamming the hell out of them. The programs are blind and can only see the numbers released in public information.