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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Travis_Bickle who wrote (71636)2/8/2007 12:08:37 PM
From: ChanceIsRead Replies (1) of 306849
 
>>> William Aldinger, bragged that Household employed 150 Ph.D.s skilled at modeling credit risk. <<<

Several thoughts:

1) Long Term Capital Management had a host of MIT PhDs cranking numbers for them. It worked for a while.

2) Computers are nice, but since their dawn, they have been accorded a certain authority which just isn't reasonable. Sure a spreadsheet can manipulate a set of numbers much better than humans whose eyes get tired and are subject to a host of distractions. But a big computer model is only as good as the algorithm. Had all of the variables even been identified?? Have they been properly weighted?? Do they have feedback between themselves?? Do the relationships change daily?? A model can only go so far, and they are not useless, but managers often give them more than their due.

3) These boneheads bought at the top!!!! Their computer model didn't save them from that. Does their model read this thread???

4) The tendency to follow the herd is a psychological force that will be around for eternity. With so much liquidity these managers have to invest somewhere (see record low interest spreads). Did they not want to be left out of the subprime boom and bet against reason??

5) I don't have time/resources to model. I look at the broad trends, charts and newspapers. Some might say that I shoot from the hip. I sell a lot of time premium through options to hedge - typically 3% of my portfolio every month. It has worked well.

6) I saw an article the other day stating little guy has no chance up against all the modeling and may as well stay in mutual funds. Ha. I haven't hired any PhDs so far and I consistently beat the broad averages.
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