Friday, February 27, 2009

Interpreting Data

I read a fabulous article in Wired yesterday! It unravels beautifully and simply what happened in the US that led to the credit crisis. Read it here. It is a total must must read!! 

The last paragraph of the article goes like this:
"In the world of finance, too many quants see only the numbers before them and forget about the concrete reality the figures are supposed to represent. They think they can model just a few years' worth of data and come up with probabilities for things that may happen only once every 10,000 years. Then people invest on the basis of those probabilities, without stopping to wonder whether the numbers make any sense at all."

And OMG, I soooo agree!! I have seen a number of 'analysts' in analysing real estate projects ONLY on excel sheets and wondered if they really understood the reason why money will be made! The money will never be made because the calculations say so but if and only if the assumptions are executed verbatim on site. And most of the financial analysts and deal makers I met never really understood this. Some of them paid heavy price by both over investing or letting go of an opportunity! I am so glad someone's penned it down so well!! 

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