At this point, everyone has heard of Nate Silver. You’ve heard of him, right? He’s the political guy who is two-for-two in presidential election forecasting, including all 50 states called correctly earlier this month. And don’t forget his new book, the New York Times bestseller, The Signal and the Noise. At Quantopian, we read everything he writes ‒ for some of us, way back since he was the author of the PECOTA baseball metric. (I’ve talked about Silver and PECOTA here before, when I wrote about Moneyball.)
Why do we like him so much? We admire his “just the facts” ethos. He encourages everyone to put the data into a sound model, and then listen to the model. We encourage everyone to use the same process: take the facts of the stock market, build a model, and then make predictions. With clean data and a sound model, you can predict the future.
Before Thanksgiving, Silver did an interview on Deadspin. Deadspin has a different audience and tone than Silver’s current home, the New York Times. Deadspin is . . . more irreverent. The format of the interview suited Silver, and he gave us some gems. My favorite response was about where smart people can make a lot of money:
Q: Given your 2008-2010-2012 analytical successes, I figure you have been offered SEVERAL times your current income to put your talents to work for a partisan political concern. Is my assumption accurate?
Silver: It’s not accurate, but also, working for a campaign is a dominated strategy for me. I really don’t like politics and think the political world can be a bit evil. I’d go work in finance if I wanted to cash in.
We heartily agree with him: finance is an industry where someone with sharp analytical skills can make a lot of money. It’s an industry that rewards people who can put the data and the technology together.
My next favorite line is about finding opportunity in the irrational ‒ and a reminder to be careful when doing so.
Q: Could you apply your skills to the stock market? Or is there too much irrational activity in place to create a good statistical model.
Silver: Irrational traders are what might enable someone to beat the market. So that would be a blessing, rather than a curse. With that said, the list of smart people who thought they could beat the market and failed miserably at it is long and illustrious.
Silver knows there is a lot of money to be made in the market. But he’s also reminding us that it’s not a slam dunk. If you screw it up, you’ll lose a lot of money instead.
The irrational element is where this quote gets deep. You can take the question and turn it inside out: “Could you apply your stock market skills to politics? Or is there too much irrationality in politics?” His answer, of course, is yes, you can put analytical skills to work in politics. Silver has proven it. And the list of people who have failed miserably at political prediction is also long and illustrious – the Chicago Daily Tribune would be happy to share it with you.
What does it take to get it right? Silver shows the way and walks his audience through it. Get clean data. Build a good model. Make predictions.
Are you interested in giving it a try? We’ve got your data waiting for you!
In the spirit of supporting claims with data, have there been any studies showing that “…finance is an industry where someone with sharp analytical skills can make a lot of money”? Adjusted for risk, does finance actually stand out as a money-making endeavor for analytical types?