I find it ironic that “Goldman Sachs never tells clients to make decisions solely on the basis of its models’ findings.” Yet billions are poured into quant and factor funds. 32 outcomes in World Cup vs countless for investment outcomes.
————
Goldman Sachs’ statistical model for the World Cup sounded impressive: The investment bank mined data about the teams and individual players, used artificial intelligence to predict the factors that might affect game scores and simulated 1 million possible evolutions of the tournament. The model was updated as the games unfolded, and it was wrong again and again. It certainly didn't predict the final opposing France and Croatia on Sunday.
The failure to accurately predict the outcome of soccer games is a good opportunity to laugh at the hubris of elite bankers, who use similar complex models for investment decisions. Tom Pair, founder of the Upper Left Opportunities Fund, a hedge fund, tweeted recently:
Tom Pair
@TomPair2
UBS ran 10,000 simulations and forecasted Germany to win the World Cup. Goldman Sachs ran 1,000,000 simulations &… twitter.com/i/web/status/1…
Sent via Twitter for iPhone.View original tweet.
Of course, past data don’t always predict the future; Goldman Sachs never tells clients to make decisions solely on the basis of its models’ findings. And in any case, the model only generated probabilities of winning a game and advancing, and no team was given more than an 18.5 percent chance of winning the World Cup. The moral of the story is probably that buzz-generating technologies such as big data and AI don’t necessarily make statistical forecasting more accurate.
-snip-
Thanks to the use of more granular data, made possible by AI, this year’s model should have worked better than the 2014 one.
If anything, it worked worse.
https://www.bloomberg.com/view/articles/...-all-wrong
(03-01-2014, 04:32 PM)(specuvestor Wrote: You study the quant numbers, PnL, B/S, cashflow, relative valuations, chart formations, etc for 3 months and they announce M&A tomorrow
Numbers don't make things happen. We live in an age where people think numbers are reality when they are mere pale reflection of reality. Reflection yes but pale. People make things happen and it is generated into numbers, not the other way round.
Like I said, listco are at least 3 layers: the asset, business and structure. PEOPLE controlling the structure control the previous 2... that is why you have S-chip and value traps.
As usual 中庸之道
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward
Think Asset-Business-Structure (ABS)