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This blog post originally appeared on RealMoney Silver on March 12 at 9:24 a.m. EDT. There was an interesting article a few days ago in The New York Times titled " They Tried to Outsmart Wall Street." In the article, the author discussed Wall Street "quants." To many, they are a mysterious group, right out of the cast of the Revenge of the Nerds series of movies. To me, they are like kin.
- They have no exit strategy. They understand how to enter a position but usually have no plan how to exit a position.
- Human emotions and psychology are often ignored or considered a constant.
- The downside is not often considered because the model says it won't occur in a "perfect" world. Unfortunately, the world is not perfect and does not exist in a vacuum.
- Companies are looked at as static models, while stocks are looked at as variables. Anyone who follows the stock market knows that companies are not static -- earnings, balance sheets, managements, products and other financial metrics are constantly changing.
- They never traded a stock in their life.
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