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The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street
Excerpted in The New Yorker and hailed by the business press, The Predictors is destined to become a classic of its generation--an antic, subversive odyssey into a universe defined by the mystical convergence of physics and finance.
How could a couple of rumpled physicists in sandals and Eat-the-Rich T-shirts, piling computers into an adobe house in Santa Fe, hope to take on the masters of the universe from Morgan Stanley? Doyne Farmer and Norman Packard may never have read The Wall Street Journal , but they happen to be among the founders of the new sciences of chaos and complexity. Who better to try to find order in the apparently unreasoned chaos of the global financial markets? Thomas A. Bass takes us inside their start-up company, following it from its inception as a motley collection of longhaired Ph.D.s to its passage into the centers of financial power, where "the predictors" find investors and finally go live with real money. The Predictors is a dizzying, often hilarious tale of genius and greed.
How could a couple of rumpled physicists in sandals and Eat-the-Rich T-shirts, piling computers into an adobe house in Santa Fe, hope to take on the masters of the universe from Morgan Stanley? Doyne Farmer and Norman Packard may never have read The Wall Street Journal , but they happen to be among the founders of the new sciences of chaos and complexity. Who better to try to find order in the apparently unreasoned chaos of the global financial markets? Thomas A. Bass takes us inside their start-up company, following it from its inception as a motley collection of longhaired Ph.D.s to its passage into the centers of financial power, where "the predictors" find investors and finally go live with real money. The Predictors is a dizzying, often hilarious tale of genius and greed.
320 pages, Paperback
First published November 2, 1999
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Displaying 1 - 14 of 14 reviews
September 1, 2018
I’m not one to judge a book by its cover, but the frontage of The Predictors somehow managed to encapsulate everything wrong with America’s perception of tech in the late nineties.
It contains a nefarious Inspector-Gadget-looking type staring at a laptop with a screensaver of the Wall Street signpost. For good measure, the author transposed the holographic backdrops of at least a dozen of the original 150 Pokemon cards and decided that the design looked really cool.
This is the main reason why I left the book on my shelf for many years. I should have kept it there.
The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street channels its own brand of chaos theory to confuse the hell out of you and discombobulate what could have been an above-average story.
The premise is in the title. Well, kind of. You see, a bunch of guys (but really two guys) who did leading research in different fields of physics (but really one very specific field) got together in Sante Fe, New Mexico (a short drive from Los Alamos) and decided that they could probably make some money in the markets. But more than two-thirds of the book elapses before they make any money at all. You have accomplished something if you make it that far.
The company started by the band of maverick physicists remains unnamed for a few chapters. Then it starts to be referred to as Prediction Company. I’m sure I just skipped a sentence somewhere but I found it appropriate considering how the rest of the book is structured. The story randomly jumps between the Prediction Company team, meetings with banks, discussions with banks (mainly UBS), descriptions of cityscapes, clichéd descriptions of the New Mexico sky, biographies of important people, economic theory, scientific research, a hilarious character named deNoyo, oddly detailed depictions of what each actor was wearing, significant economic events of the 1990s, and a version of Burning Man held in New Mexico.
The end product is a hodgepodge. That it was heralded as “destined to become a classic of its generation,” again represents everything wrong with how people perceived technology in the late nineties. This book is a JV version of Fortune’s Formula. In all fairness, some passages in it sounded awfully similar to what I read in Fortune’s Formula, so credit is due because it’s likely that William Poundstone used this book as inspiration both for subject matter and story construction (his book is off-the-wall as well, but is more satisfying to read).
I understand that the late-nineties audience was largely incapable of understanding the nuances of physics, trading, or computer science at the time, but there is very little here for a reader of any sophistication. For example, while the system did end up being solidly profitable, there’s no explanation whatsoever. I have no idea what they did. There are few raw numbers, no ROI over time, no ratios, no strategy explanation—basically nothing that would allow the reader to determine whether they were just enjoying the spoils of first-mover advantage or if their approach would have lasted for more than a millisecond in today’s red ocean.
If you liked this book you should definitely check out Fortune’s Formula. If you aren’t sure whether or not to read this book—don’t.
See this review and others on my blog
It contains a nefarious Inspector-Gadget-looking type staring at a laptop with a screensaver of the Wall Street signpost. For good measure, the author transposed the holographic backdrops of at least a dozen of the original 150 Pokemon cards and decided that the design looked really cool.
This is the main reason why I left the book on my shelf for many years. I should have kept it there.
The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street channels its own brand of chaos theory to confuse the hell out of you and discombobulate what could have been an above-average story.
The premise is in the title. Well, kind of. You see, a bunch of guys (but really two guys) who did leading research in different fields of physics (but really one very specific field) got together in Sante Fe, New Mexico (a short drive from Los Alamos) and decided that they could probably make some money in the markets. But more than two-thirds of the book elapses before they make any money at all. You have accomplished something if you make it that far.
The company started by the band of maverick physicists remains unnamed for a few chapters. Then it starts to be referred to as Prediction Company. I’m sure I just skipped a sentence somewhere but I found it appropriate considering how the rest of the book is structured. The story randomly jumps between the Prediction Company team, meetings with banks, discussions with banks (mainly UBS), descriptions of cityscapes, clichéd descriptions of the New Mexico sky, biographies of important people, economic theory, scientific research, a hilarious character named deNoyo, oddly detailed depictions of what each actor was wearing, significant economic events of the 1990s, and a version of Burning Man held in New Mexico.
The end product is a hodgepodge. That it was heralded as “destined to become a classic of its generation,” again represents everything wrong with how people perceived technology in the late nineties. This book is a JV version of Fortune’s Formula. In all fairness, some passages in it sounded awfully similar to what I read in Fortune’s Formula, so credit is due because it’s likely that William Poundstone used this book as inspiration both for subject matter and story construction (his book is off-the-wall as well, but is more satisfying to read).
I understand that the late-nineties audience was largely incapable of understanding the nuances of physics, trading, or computer science at the time, but there is very little here for a reader of any sophistication. For example, while the system did end up being solidly profitable, there’s no explanation whatsoever. I have no idea what they did. There are few raw numbers, no ROI over time, no ratios, no strategy explanation—basically nothing that would allow the reader to determine whether they were just enjoying the spoils of first-mover advantage or if their approach would have lasted for more than a millisecond in today’s red ocean.
If you liked this book you should definitely check out Fortune’s Formula. If you aren’t sure whether or not to read this book—don’t.
See this review and others on my blog
January 23, 2012
Imagine--a small group of physicists from UC Santa Cruz who once tried to break Vegas by modeling roulette, turning their attention to the markets on Wall Street. Can they model stock market trends using physics (or at least their physics way of doing things)? Will they prove that scientists are better than the good ol' boy trading jocks at making money?
In this in-depth and exciting firsthand account of naïve Wall Street wannabes, Bass walks the reader carefully through the origins of the seemingly insane idea of modeling stock trends by these one-time University of California physicists. Then, with a series of backstories (mini biographies on the players concerned), he details the development of their Prediction Company and how long shot their idea truly is. Even before they can attract investment funds, the scientists in Prediction Company struggle with learning the basics of the stock markets. College freshman in finance 101 know more about the markets then these physicists did.
As their mathematical models mature and a joint venture is signed with a Swiss bank, Prediction Company still stuggles against never ending software bugs, forgetfulness of market half-days, general market sentiment, and missed deadlines. Throughout the book one gets the feeling that this dark horse in the investment world is on the verge of making it big only to be surprised in the markets by unlikely events.
As the book nears completion, the reader is left guessing if these physicists can pull it off and whether their European partners will extend their contract for another two years in light of their uncertain performance.
Scientists contemplating making the move Wall Street will appreciate this book as proof that no physical system--not even the stock market--is immune to analysis by physicists.
In this in-depth and exciting firsthand account of naïve Wall Street wannabes, Bass walks the reader carefully through the origins of the seemingly insane idea of modeling stock trends by these one-time University of California physicists. Then, with a series of backstories (mini biographies on the players concerned), he details the development of their Prediction Company and how long shot their idea truly is. Even before they can attract investment funds, the scientists in Prediction Company struggle with learning the basics of the stock markets. College freshman in finance 101 know more about the markets then these physicists did.
As their mathematical models mature and a joint venture is signed with a Swiss bank, Prediction Company still stuggles against never ending software bugs, forgetfulness of market half-days, general market sentiment, and missed deadlines. Throughout the book one gets the feeling that this dark horse in the investment world is on the verge of making it big only to be surprised in the markets by unlikely events.
As the book nears completion, the reader is left guessing if these physicists can pull it off and whether their European partners will extend their contract for another two years in light of their uncertain performance.
Scientists contemplating making the move Wall Street will appreciate this book as proof that no physical system--not even the stock market--is immune to analysis by physicists.
December 25, 2013
This book is in some sense an average of the simplistic character synopses of Patterson's Quants and the more in-depth (but still pop) mathematics of Mandlebrot's the Misbehavior of Markets. The main characters are interesting and help to tie the story together. The most interesting thing is the subtitle, which is just wrong. The subtitle is "How a band of maverick physicists used chaos theory to trade their way to a fortune on wall street." I will admit that it is about a band of physicists who can be thought of as maverick for having attempted to beat Roulette and also left the research community for finance before it was trendy. On the other hand, they explicitly do not use chaos theory. Yes, their background is chaos theory, but they clearly say that chaos applies when the rules of the system are fixed and with trading the rules change as traders' behavior changes. This observation, more fully explored by J. Doyne Farmer, is perhaps the best insight from this book. The subtitle is also wrong because they begin trading other things (mainly futures in Chicago, I think) and only move to stocks (Wall Street) later. And finally, by their own admission, they never become filthy rich. There is no mention of how much they personally make, but they agree it is not a fortune. In conclusion, the subtitle is probably the book Bass wishes he wrote, even though it's false in three respects. Nevertheless, it's a good book, well written, and with interesting characters. Read it if you like to read about the early days of quantitative finance.
August 26, 2018
I love the idea. The book was OK but not great. If not for the endless descriptions of mundane offices and people in them between the action, the book could have been 25% shorter.
Just previous to reading this I read M. Mitchell Waldrop's Complexity: The Emerging Science at the Edge of Order and Chaos, which was about an overlapping group of very smart people from physics, economics and computer science who got together to form the Santa Fe Institute aimed at studying the emerging qualities of complexity.
In my view, Complexity was a much better read and story but The Predictors was OK, not bad, by any measure.
Prediction Company is still around, so they survived after the book's story line ended. The world of black box trading is thriving today.
Just previous to reading this I read M. Mitchell Waldrop's Complexity: The Emerging Science at the Edge of Order and Chaos, which was about an overlapping group of very smart people from physics, economics and computer science who got together to form the Santa Fe Institute aimed at studying the emerging qualities of complexity.
In my view, Complexity was a much better read and story but The Predictors was OK, not bad, by any measure.
Prediction Company is still around, so they survived after the book's story line ended. The world of black box trading is thriving today.
June 6, 2008
I enjoyed much of this book, even though at times I felt it rather dense and technical. I think if you've enjoyed books like "When Genius Failed" this is one you'll enjoy too.
May 28, 2010
This book fascinated and frustrated me. Smart people figuring out how to beat the market fascinated me. The lack of a rounding off or triumphant ending frustrated me - but I guess life is not always like that. Prediction Company does still exist, however, which I take as a sign that they've done extremely well. Bass's writing style is very engaging.
May 31, 2013
Not very well written and jumped around often. Also had a lot in there that could have easily been removed. Short on the details I wanted to read. But a decent read nonetheless. Some thought provoking stuff in it.
December 17, 2013
Interesting and engaging narrative - however some more detail into their actual trading systems would have been good (although there are probably good reasons why they did not want to release them).
Decent read, but would not say a must read.
Decent read, but would not say a must read.
January 26, 2018
An important contribution to the history and evolution of the financialization of the economy. An entertaining and enlightening book.
January 1, 2019
Without this book I don’t think I’d have stumbled onto quant finance, the Santa Fe institute, or complex systems for a good while. I remember this one very fondly.
July 15, 2020
Well I am in this book so I can address some of the issues people raised about it. I was CTO of Prediction Company from its inception until 2008. We were highly successful and sold ourselves to UBS in 2005. The company was shutdown last year after 28 years in business with an average annual return of over 20% and only one losing year.
The source material for the book was gathered over only the first couple years in business and it took us longer than that to really get things rolling. Thomas spent a lot of time with us in those first years. However our agreement with him specifically prohibited publishing much technical detail or detail about our performance. That wasn't Thomas's fault.
Yeah all the descriptions of clothes and places is tedious.
The source material for the book was gathered over only the first couple years in business and it took us longer than that to really get things rolling. Thomas spent a lot of time with us in those first years. However our agreement with him specifically prohibited publishing much technical detail or detail about our performance. That wasn't Thomas's fault.
Yeah all the descriptions of clothes and places is tedious.
October 2, 2023
Follow-up book to The Eudaemonic Pie, which was a readable story about a group of genius chaos theory physicists attempting to beat roulette. In The Predictors Thomas Bass picks up the story some ten years later as the original Eudaemonic founders Doyne Farmer and Norm Packard move on to real prey: th... [see the rest on my book review site.]
March 20, 2022
Exciting story in the 90's about a real trading company getting created, digesting tons of market data, looking for systematic trading models, raising money, dealing with the team.
Would have loved experiencing this :)
Would have loved experiencing this :)
April 15, 2020
History of the quant funds beginning at O'Oconnor out of Santa Fe
Displaying 1 - 14 of 14 reviews