It's Like Fishing

"It's like fishing. In the past, when you wanted to catch fish, you threw your line out and waited. Now there are many fewer fish out there, which means you have to use better technology than just throwing your line out. Only a few places understand that, and they are catching a lot of fish. Nevertheless, we're pushing the world toward equilibrium, where risks and expected returns line up and making money from active management becomes more and more difficult."

Bob Litterman (Goldman Sachs) in early 2007, describing his vision of what a quantitative portfolio manager does.

Let's keep the fishing metaphor to try and describe the events of the past year. 

The quantitative portfolio managers (the fishermen in our tale) became so obsessed with catching the remaining tiny fish hiding in calm waters, they totally forgot they were actually in the middle of the ocean and not on a small pond. Therefore, when a major storm hit, they were caught totally unprepared and basically... drowned. 

Now, a year into the stormy conditions, it's a totally different sea out there with a totally new ecosystem, new fish to catch (new market inefficiencies to exploit) but our poor fishermen are not here to catch them anymore. A new breed of fishermen is slowly appearing and, having learned their trade during the stormy season, they will really thrive when calm waters return. 

And then...the cycle will start anew.