It must be said that the editor was a well-educated man and in his conversation he very competently referred to many known financial scientists - for instance, the famous Nassim Taleb and his bestseller âFooled by Randomness: The Hidden Role of Chance in Life and in the Marketsâ in which he had never mentioned the actual trading techniques yet clearly had underlined the probabilistic structure of rational decision making. Displaying a solid erudition, McCarty also informed Michael, among other things, that Dr. Mandelbrot in his book âThe (Mis)Behavior of Marketsâ specifically criticized the modern market efficiency theory and suggested that the Bell Curve as a foundation for the regression-to-the-mean trading models is severely overrated.
Michael, for whom everything the editor was talking about was a revelation, listened attentively to McCarty, fixing his deep-set eyes on him and trying not to miss any of the useful references that the editor was mentioning with such fluency.
âThereâs not a single stock, futures or FOREX trading book out thereâ, McCarty was saying, âIn which, as a rule, the author would not attempt to recycle the old âHead-and-Shouldersâ along with all the usual âMACDsâ,â RSIsâ etcâ. And in just the same way, without inventing anything new, Michaelâs article simply rearranged all known chart reading techniques under the questionable flavour of market folklore without the offering of any insights into the marketâs quantitative and probabilistic nature.
McCartyâs loud voice resonated out in the deserted Boathouse deck, and as the editor went deeper into the logic of probabilities, which only a highly educated man can go into without risking a broken neck, Michael learned more and more interesting and useful things about the 1900 doctoral thesis of Louis Bachelier, Theorie der Prämiengeschäfte (Theory of Premium Contracts) written by Vinzenz Bronzin in 1908, Hafner/ Zimmermann analysis of premiums and many other Efficient Market Theory contributions that Michael had no way of knowing in his more than twenty year career as a derivatives trader. And just at the moment when the editor was telling Michael about the differences between the Mandelbrotian and Gaussian Probabilities a man walked onto the Boathouse deck and sat on the next bench not too far from where Boulez and McCarty were sitting.
The man was quite tall; he was wearing an expensive grey summer suit and soft suede shoes. He looked to be a little over fifty; his mouth was somewhat crooked, his face was clean-shaven and his dark hair was fairly long.
The man gazed around at the tall buildings of Lower Manhattan making it obvious that he was seeing this part of New York for the first time and that it was very interesting to him. He shifted his glance on the upper floors, where the tinted glass magnificently reflected the split-in-half sun which was turning into a bright copper disk, then moved it lower down to where the windows were beginning to darken before evening, smiled condescendingly at something, narrowed his eyes, put his elbows on his knees and rested his chin on his joined hands.
âFor instance, Michael,â McCarty was saying, âyou explained very well that using a moving averages crossover indicator one could trade quite reliably, however, you have not offered any proof of why it should work in any given market condition, what makes it more desirable than simply playing a random guessing game and why the traderâs intuition, experience and skill should be taken out completely from his or her rational decision making â¦â
At this moment the editor has interrupted his speech because the man on the next bench suddenly got up and walked towards them. Both Michael and McCarty looked at him in surprise.
âExcuse me, please,â the approaching man began speaking, with a slight foreign accent but without twisting the words, âI could not help overhearing you. The subject of your conversation is very interesting to me ...â
Here he politely smiled, and the pair had nothing left but to smile back at him.
âMay I sit down?â the man asked politely, and Michael and McCarty somehow involuntarily moved apart; the man nimbly sat down between them and at once entered into the conversation:
âUnless I heard wrong, you were saying that the traderâs anticipation skills and the subliminal decision making abilities are worthless?â the man asked, turning his dark eyes to McCarty.
âNo, you did not hear wrong,â McCarty replied politely, âthat is precisely what I was saying.â
âAh, how interesting!â exclaimed the man.
âWhat the hell does he want?â thought Boulez, frowning.
âAnd do you agree with your mentor?â inquired the stranger, turning to Boulez.
âItâs hard to disagree with pure logic,â confirmed the man, who instantly took the safest side of the argument following his traderâs instincts.
âFascinating!â exclaimed the uninvited debater and, devilishly smiling, he said: âForgive my pestering, but, as I understand, along with everything else, you also do not believe in Intuition or Perception as valid tools to make trading decisions?â
âNo, we donât believe in those,â McCarty replied, smiling slightly at the foreignerâs unusual remark, âwe believe in the objective reality of mathematical models and not in âhunchesâ or âsuspicionsâ that could never be formally modelled.â
The foreigner sat back on the bench and asked, with a hint of sarcasm in his voice: âYou consider yourselves as âquantsâ then, right?â
âYes, weâd like to think of us this way,â McCarty smilingly replied throwing a quick look at Michael who was getting angry at the foreigner.
âOh, how interesting!â the foreigner replied cheerfully and began swivelling his head, looking from Michael to McCarty.
âIn our business the word âquantâ does not surprise anyone anymore,â McCarty said with tactful politeness. âThe majority of all the financial institutions, banks, hedge funds and all sorts of portfolio managers consciously and long ago ceased believing in the fairy tales about traders like George Soros; they prefer mathematical algorithms and quantitative analysis to run their funds.â
