My Life as a Quant | Emanuel Derman

Summary of: My Life as a Quant: Reflections on Physics and Finance
By: Emanuel Derman

Introduction

Embark on a captivating journey through the world of physics and finance in Emanuel Derman’s ‘My Life as a Quant: Reflections on Physics and Finance.’ This book gives an insightful account of how physicists migrated from academia to Wall Street, using their expertise in mathematical modeling to revolutionize the financial world. The book also highlights the author’s personal and professional reflections, from experiencing culture shock in America to battling academic politics and eventually transitioning into the world of finance at Goldman Sachs and Salomon Brothers. Get ready to explore the fascinating union of two seemingly unrelated fields and delve into the life of a physicist-turned-quant.

Physics Meets Wall Street

Physicists found themselves out of jobs during the ’70s academic collapse and ended up in the world of finance. Wall Street firms sought physicists because they understood change over time, which is crucial in predicting the unpredictable nature of the market. With the collapse of the post-WWII economic order, the stable financial world became uncertain, and only physicists had the math skills to understand and predict it. Governments reduced the funding for pure sciences, leading to a shortage of academic positions. Out of a job, physicists found opportunities to work in the well-paying financial industry. As a result, physics became an integral part of Wall Street, and the study of financial economics became part of physics.

From Particle Physics to Finance

At only 16, Derman enrolled at the University of Cape Town in South Africa to study particle physics. In 1965, he went to the U.S. to apply for graduate school without a careerist’s interest in physics. Columbia University in New York City provided Derman with two types of culture shock. The first was ordinary, but the second one, more personal, was that he wasn’t prepared for a top-tier American grad school despite being ahead in applied mathematics. Derman learned the most important lesson that success requires more luck and perseverance than talent.

Persevering through Adversity

A physicist’s journey through the tough and competitive world of academic physics, where only the best succeed but at the cost of unpleasant psychological and emotional environments. Derman, part of the biggest crop of successful physicists in history, found the going tough and was separated from his wife. However, he found success by discovering an interesting puzzle in physics, which led to another post-doctoral position at Oxford University in England. Although difficult, he persevered and even found solace in the spiritual teachings of Rudolf Steiner. Despite the xenophobia and anti-Semitism he faced in England, he returned to New York City and received his Ph.D. Derman’s most significant achievement was developing perseverance along the way.

From Physics to Wall Street

After feeling burnt out from constantly searching for academic job opportunities, Derman left his position as an assistant professor at the University of Colorado to join AT&T Bell Labs. Despite initially feeling guilty for leaving academia behind, his experience at the labs eventually led him to a successful career on Wall Street. His exposure to Tibetan Buddhist meditation during a difficult time at the University of Colorado also had a long-term impact on his life. Derman’s story shows that sometimes taking a chance and making unexpected career choices can lead to fulfilling outcomes.

Escape from the Bureaucracy

The book describes the author’s tenure at AT&T as a form of imprisonment within a corporate bureaucracy, where employees focused on corporate politics and mastery of arcane rules. Despite interesting theoretical research taking place, the author was stuck in applied work that seemed to lead nowhere. He found solace in building elegant software programs, which proved useful in the future. However, it took him five years to escape from this purposeless environment filled with meaningless regulations, such as filling out overtime sheets despite AT&T not paying any overtime.

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