June 11, 2008
Klarman‘s comments on investment strategies are worth reading. He covers the credit crunch, the abuse of leverage, academic economists ignoring empirical evidence, and risk/return. He advocates the Buffet/Graham value investing philosophy.
I’m also reading and greatly enjoying Emanuel Derman‘s My Life as a Quant at the moment. I’ll comment more on this later, but must point out how Derman’s comments on academic economists chime with Klarmans. While Klarman notes that academic economists often ignore evidence, Derman points out that the maths of economics is much more formal than the maths of physics textbooks – “much of it reads like Euclid or set theory, replete with axioms, theorems, and lemma. You would think that all this formality would produce precision. and yet, compared with physics, economics has so little explanatory or predictive power.”
The point being that physicists don’t need to cloak their theories with the spurious authority of excessive formalism…