I’ve not yet finished reading Scott Patterson’s The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, but I’d like to go on record now in disagreement with The Economist’s review of the book. I do agree that Patterson’s prose can get a bit “purple” in places, but I think his focus on the quantitative models developed and used on Wall Street over the last three decades is an important one. And the way he explores the topic—through the stories of the individuals who created those models—keeps the reader engaged in a tale that might otherwise turn too academic for most.

Patterson also tells of individuals in the “quant” community who have warned against relying on the models they helped create, and he makes good use of their voices in supporting his conclusion that there is no absolute truth in those models—that there is not a science or equation with which to predict and play the market. Beyond referring to the more popular dissidents, such as Nassim Nicholas Taleb and Benoit Mandelbrot, he refers to two I have not come across, Paul Wilmott and Emanuel Derman, and their Financial Modelers’ Manifesto:

It was a cross between a call to arms and a self-help guide, but it almost amounted to something of a confession: We have met the enemy, and he is us. Bad quants were the source of the meltdown.

“A spectre is haunting markets—the spectre of illiquidity, frozen credit, and the failure of financial models,” they began, ironically echoing Marx and Engels …

What followed was a flat denunciation of the idea that quant models can approximate the Truth:

Physics, because of its astonishing success at predicting the future behavior of material objects from their present state, has inspired most financial modeling. Physicists study the world by repeating the same experiments over and over again to discover forces and their almost magical mathematical laws. … It’s a different story with finance and economics, which are concerned with the mental world of monetary value. Financial theory has tried hard to emulate the style and elegance of physics in order to discover its own laws. … The truth is that there are no fundamental laws in finance. And even if there were, there is no way to run repeatable experiments to verify them.

In other words, there is no single truth in the chaotic world of finance, where panics, manias, and chaotic crowd behavior can overwhelm all expectations of rationality. Models designed on the premise that the market is predictable and rational are doomed to fail. When hundreds of billions of highly leveraged dollars are riding on those models, catastrophe is looming.

That quote, I think, pretty much sums up the reason this book is important. We have all heard that the problems on Wall Street stemmed from firms over-leveraging their positions, but we don’t often discuss the model they were leveraged on. The more books addressing the issue, the better—I would think. A great book on the subject that was vastly under-appreciated when it was published, and that I’m surprised hasn’t come into the conversation since, is Richard Bookstaber’s A Demon of Our Own Design, which we named the best Finance and Economics book of 2007 in our first annual 800-CEO-READ Business Books Awards. The book came out a year before Nassim Nicholas Taleb’s more popular Black Swan, and I think it’s just as important. (And both men were on Wall Street to witness the rise of “the quants” in the ’80s. Both, in fact, were among their early numbers.)

A Demon of Our Own Design begins tantalizingly:

While it is not true that I caused the two greatest financial crises of the late twentieth century—the 1987 stock market crash and the Long-Term Capital Management (LTCM) hedge fund debacle 11 years later—let’s just say I was in the vicinity. If Wall Street is the economy’s powerhouse, I was definitely one of the guys fiddling with the controls. My actions seemed insignificant at the time, and certainly the consequences were unintended. You don’t deliberately obliterate hundreds of billions of dollars in investor money. And that is at the heart of this book—it is going to happen again.

It happened again, alright, and Patterson’s book does a good job of documenting it on the other side. Patterson doesn’t have the narrative genius of a Micheal Lewis or Andrew Ross Sorkin, and The Quants is no Liar’s Poker or Too Big To Fail, but Scott Patterson has turned in a valiant debut effort and The Quants is a very good book.

Due to a few minor—yet incredibly frustrating—errors at the printer, our annual review of business books, In the Books, had to be reprinted. (For those of you who received a copy at our awards event in New York City, please avert your eyes from page 48. We will be mailing out new copies to you soon.) The good news is that, because it was a printer error, we didn’t have to pay for the reprint, (and it gave me a chance to correct a embarrassingly misplaced apostrophe and missing period).

So, the printer made it right, and we finally received the reprint yesterday, and we’re very happy with (and proud of) the result. We are not offering it up for sale on its own, but we have put together an even better offer in its stead. It is the In the Books Bundle. For the price of previous year’s reviews, $24.95, you will get our review of 2009, and we’re throwing in the 2007 and 2008 editions along with it.

Each issue highlights the 800-CEO-READ Business Book Awards and contains essays covering the books of the year they cover along with other miscellany from the business book world. If you’d like an example of previous year’s essays, check out our ten-part blog series from past annuals (linked below).

Part I | II | III | IV| V |VI | VII | VIII | IX | X

And, once you’re done reading the blog series, head on over to the 8cr store and get the full, analogue editions of our annual reviews with the In the Books Bundle

This morning we received an email from Noah Fleming (self-described as a “linchpin in training”–which we love), letting us know that he had started a Shelfari for the books in The 100 Best Business Books of All Time. Noah’s goal is to read all 100 books by December 31, 2010, and by creating a group on Shelfari, he is encourages others to take up the same challenge. Shelfari is “the premier social network for people who love books” where you can create a virtual bookshelf to feature the books you are reading and create reading groups to discuss those books.

We thought Noah’s idea was just fantastic and can’t wait to hear how it goes, what discussions are ignited. If you are interested in joining Noah on his Shelfari of The 100 Best Business Books of All Time, go here to take the challenge.

As I mentioned in our most recent The Keen Thinker newsletter, I highly recommend reading Sally Hogshead’s new book, Fascinate. (Admittedly I feel a strange attachment to Sally because there aren’t many of us in the world named Sally, let alone Sally H. And although I did not change my last name when I got married, I’ve never had much affection Haldorson. So it’s always nice to stop by Sally’s site and see her vigorous defense (and brand-making) of her last name, Hogshead.)

Today, I visited her site and took the F-score quiz to learn what my “fascinate” triggers are. I find these kinds of quizzes difficult because I tend to see the variables in all questions and I always want to hedge on my answers. But I did my best to answer the 24 questions with my gut reactions instead of thinking too much about it.

I’ll tell you, when I read my results, I was…uncomfortable. According to my test results, my primary trigger is Power, my secondary is Lust, and my dormant trigger is Vice. At first, I laughed. Power? Me? I’m a pretty unassuming person who left behind a teaching career in large part because I don’t like to be the center of attention. But with some reflection, and watching the short video she created to illustrate the power trigger, I realized that there might be some truth to this quiz result. As an editor and writer, I enjoy a certain kind of power. I like to influence the writing of others and I like to persuade via my own writing, which tends to be descriptive and personal (and seems to be the “lust” trigger). While I may not be a dominating personality, I have confidence in my creative and critical abilities. I love nothing more than to critique a piece of writing using solid research as well as my personal experience.

But even writing the paragraph above makes me feel a little squirmy. Why, I wondered. So at the risk of going on a gender analysis tangent, perhaps that discomfort is due to the fact that I am a woman and rarely are women described as powerful, lustful, prestigious, etc. Women are often assigned more stereotypically genteel traits that are more soft, less aggressive. (Excellent article here.)

My Fascinate quiz results did indeed cause me to look at my work differently, to see it in terms I may not have assigned to myself previously. It stretches, perhaps, the definitions I use to create boundaries around my work, around myself, and how, in the future, I can harness those triggers.

We are big fans of Chris Brogan and Julien Smith, as evidenced by us naming their book Trust Agents the best Advertising & Marketing book of 2009 in the 800-CEO-READ Business Book Awards.

We’re also huge fans of all things analogue here at 8cr—we love us some books and records. Sure, everybody has mp3 files on their computers, and we all read our blogs and follow the Twitter, but how many of us really bookmark our favorite posts and go back to them for inspiration, affirmation, or to remind ourselves of a valuable lesson? And have you ever held an mp3 file in your hand, pored over the liner notes and inspected the artwork as the music envelopes you? (And that’s not even touching on the superior sound quality of a record or a book’s near perfect, portable, paper interface.)

Well, that’s the long-way-round to telling you that I love Chris Brogan’s Social Media 101, but it has everything to do with why I love it. Brogan tells us up front that “This book is a collection of several blog posts that originally appeared at www.chrisbrogan.com. You could get this book (in a very raw form) from my blog for free (minus all my updates and edits).” So, why publish a paper copy? Compiling blog posts into a book is nothing new, and Brogan admits to giving others a hard time for doing it in the past, but I think there’s a compelling reason to do so. Let me explain.

There’s a lot of great advice on Chris’s blog. The problem is, I’m probably not going to save today’s Kitchen Table Talk and refer back to it. I will, however, probably get the Martin Luther King, Jr. box set he reviewed in the video, put it with the section of my music collection that houses my records of speeches, broadcasts and poetry,* and come back to that.

*My favorite, by far, is Dylan Thomas reading Gerard Manley Hopkins’ The Leaden Echo & The Golden Echo.
It’s so wonderfully over the top.

The difference is simple. I don’t get on the Internet to read something I’ve read before, or listen to music I’ve heard. The Internet is a beast we can’t catch; it’s constantly changing. We are forever chasing it, looking for something new—new ideas, new music, new solutions—always trying to catch up. But, when you place an object in the analogue space of your home or office, it’s caught you. If it is special enough, or useful enough, that you’ve found room for it in your finite analogue world, you’re bound to come back to it again and again. And that object is going to be the same every time you do, never updated, never changing. You love it the way it is, and it’s going to stay that way for you, consistently informing your daily life.

Social Media 101 is not a book I am going to read from cover to cover, but it will stay on the corner of my desk or on the shelf behind me, and I’ll be coming back to it anytime I have a question about social media (which is often). I’m sure I’m going to dog-ear and highlight the parts I find most useful. The problem is that, judging upon my first reading today, I might end up dog-earing and marking up every other page.