Traditionally, many students seem to think that marketing and finance are 2 very different disciplines. Finance is all rules and it’s only for those who are good with numbers. Some may perceive that Finance is more “boring” because it does not let one think creatively like Marketing. I can speak from my own experience that these beliefs are all painfully wrong. In today’s world, Finance is not all about rules and no room for creativity. In fact, it is quite the opposite.
First of all, Finance is all about rules? No. It is all about “un-rule”. There’s a saying: “All models are wrong, but some are useful”. No rule, no model can generate profits forever. The market will adapt to your strategy. You must change. Second of all, Finance has no room for creativity? Oh no, Finance is all about creativity and thinking outside the box. Sounds strange? Well, if you think about how advanced our modern computers are, why would anyone need to hire someone to do the number crunching? If Finance were all about calculating numbers, then most financial jobs would be replaced by computers already. But why financial practitioners are still being paid so high? It must be the case that their jobs cannot be replaced by computers.
Finance is as much an art as it a science. When we use rules and empirical models it’s science but when we introduce new ways of thinking it becomes an art form. It is also extremely challenging and competitive. The markets constantly change. When you come up with an idea about how a market works, rest assured that million others have thought about it, too. Or at least, soon there will be. Analogously, imagine discovering a gold mine. At first, you got the mine all for yourself. But then other people start to notice: “Hey, I should get in and get some gold for myself too”. Sooner or later, the mine depletes. The same happens for every model, every strategy in Finance. So, what gives one an edge in this competitive world? Only the ability to do research and come up with novel, hopefully unique, ideas. The more novel and unique the idea is, potentially the more rewards you can reap from it, before everyone else jumps in. There maybe many classical and modern models from textbooks and research papers, but it all depends on the each person to apply them and/or combine them in a unique and profitable way. A researcher in a quantitative fund will have to keep thinking of new ways to generate new signals, profitable signals. He or she will not have the luxury of keep working hard and rewards will come. He or she must also work smart and creatively.
So, if you are thinking about working in Finance, particularly in an investment bank or a fund, ask yourself these questions: Are you willing to spend hours doing research everyday? Are you willing face the discouragement from knowing that despite all your efforts, your model just does not work as expected or that although the backtest result is good, the model fails to generate real profits? Do you have an open mind to accept the fact that your best model is now practically useless? And finally, in a race against millions of other, are you creative enough?
In later posts, I will present some of the basic strategy that I have tested using Websim, a strategy backtest platform from WorldQuant. I hope that you can start to see a more different side of Finance and have fun along the way.
Author: Dong Le Ba Thong, ACSI Young Professionals Network Vietnam.