Trend Following, 5th Edition

14 Jean-Philippe Bouchaud

Jean-Philippe Bouchaud is a French physicist. He is the founder and chairman of Capital Fund Management (CFM) and is a professor of physics at École Polytechnique.¹

Skeptical scrutiny is the means, in both science and religion, by which deep thoughts can be winnowed from deep nonsense.

Carl Sagan

Michael:

I want you to elaborate on your physics background, but bring that into this framework of classical economics. Classical 
economics, the rationality of economic agents, the supposed rationality, the invisible hand, market efficiency . . . But for some reason the idea of empirical data often gets left out of the equation—and I’ve seen this with some other traders that have had success—a physics background is different. It allows you to maybe look at the world through a wider lens.

Jean-Philippe:

Yes, exactly, I’m surprised that you say all of this because that’s more or less what my usual message is and you’ve captured all of it in a few words. Yes, it is true that I’m a physicist by training, and physics is of course learning through doing experiments. And you learn that theories are no good if they’re not able to reproduce observations. And even if your theory is beautiful, if it doesn’t fit, it doesn’t fit. You just have to throw it in the dustbin and start again.

As a physicist approaching economics and finance back in the early ’90s, that’s what struck me most—that it is a lack of a statistical aspect to the way economics and finance theories ...