Preface
A successful fund manager and former academic once told me that business school research is focused too much on topics that get professors published and promoted and too little on explaining how markets actually work. This was not an entirely facetious remark. He was referring to what he perceived to be a fundamental disconnect between the objectives of mainstream business school curricula and those of investment professionals. As both an academic and an investment professional, I not only echo that sentiment but I also see the gap widening. This book attempts to bridge that gap.
My experience over the past thirty years confirms a continuing trend in core business school curriculums away from rigorous analytics. It should come as no surprise, therefore, to see practitioners discount the value of strong analytic skills in their decision-making processes. Indeed, my conversations with practitioners reveal a heavy bias to their instincts as investment managers and a tone that challenges me to prove to them that there is somehow a cost associated with not understanding the details of various concepts such as mean variance optimization, the decomposition of risk, derivatives, and so forth. They simply point to their portfolio outperformance relative to their benchmarks as evidence suggesting that these skills are at best superfluous. I might note here as well that most of the professionals around today learned to manage assets during the long-running bull market that began ...
