When I did my MBA, it was fashionable to describe students as either Poets or Quants.
What does this mean? And what are the implications for developing and executing business strategy?
Understanding the Dichotomy
The distinction between poets and quants revolves around their approach to problem-solving.
Quants are the data-driven analysts who thrive on precision. They develop models for virtually every scenario, dissecting problems into quantifiable pieces. Quants view the world through a numerical lens, seeking patterns and trends in raw data. They tend to prefer structured, data-driven approaches and objective reasoning.
They're more likely to have backgrounds in STEM subjects (Science, Technology, Engineering and Mathematics).
Poets, on the other hand, are more disposed towards qualitative analysis. They possess an uncanny ability to read between the lines, discerning the broader implications of events or news. For poets, intuition and narrative are paramount. They tap into the pulse of the market, often discerning opportunities where others see none. They're more likely to be comfortable with ambiguity, narrative and subjectivity.
They're more likely to have backgrounds the humanities and the arts.
In summary:
| Poets | Quants |
|---|---|
| Intuitive and qualitative approach | Data-driven and quantitative approach |
| Ability to read between the lines | Precision in analysis through models |
| Discern broader implications of events or news | View the world through a numerical lens |
| Rely on narrative and subjectivity | Prefer structured and objective reasoning |
| Comfortable with ambiguity | Thrive on identifying patterns and trends in raw data |
| Often discern opportunities where others see none | Break down problems into quantifiable pieces |
| Backgrounds in humanities and arts, offering diverse views | Backgrounds in STEM, emphasizing logical analysis |
| Tap into the pulse of the market | Use mathematical models for scenarios and predictions |
| Value intuition, gut feelings, and experience | Rely on empirical evidence and data validation |
| Embrace narrative to communicate and persuade | Use data visualization and statistics for communication |
| Able to grasp cultural, social, and emotional nuances | Strong in algorithmic thinking and systematic processes |
The "Billions" exemplar
Protagonist and poet Bobby "Axe" Axelrod, founder of Axe Capital, is an intuitive trader with an uncanny ability to read situations, understand the broader implications of news or events, and act on gut feelings.
But he is wise enough to employ plenty of quants on his team.
Most of the time, this works well, with the poets and quants bring different perspectives which either corroborate or disprove each others' hypotheses.
But it also leads to conflict, resulting, in the end, in quant Taylor Mason leaving Axe Capital to set up a rival firm. And so, the battle lines between the poets and the quants are drawn in even sharper relief.
This is, of course, just a TV show, and dramatised for entertainment.
But people familiar with trading floors around the world assure me that this dynamic plays out in real life on an ongoing basis. The quants built ever more sophisticated models to eke out ever small margins at ever larger volumes. The poets spot real-world events and intuitively understand their implications.
The Interplay of Skill Sets
While it's tempting to pit poets against quants, the reality is more nuanced. Good strategy requires both.
The best strategists can seamlessly blend quantitative analysis with intuitive insights. For those who don't possess this both skills, it's crucial to have a mix of both types on their team.
However, this blend is not without its challenges. Poets and quants can often find it challenging to communicate with each other, given their distinct approaches. It's almost like they're speaking two different languages.
But it's precisely this diversity of thought that can lead to ground-breaking strategies.
Developing more rounded perspectives
Interestingly, it seems easier to introduce a liberal arts major to the world of basic mathematics than to immerse a math major in the world of liberal arts.
In his book "Innumeracy", John Allen Paulos defines innumeracy as the mathematical equivalent of illiteracy. He goes on to argue that innumeracy is much more widespread that illiteracy. He points out that it's socially acceptable to admit to being bad at math, but it remains taboo to admit to being illiterate, despite the fact that both have similar real-world consequences.
Paulos attributes this problem to the way maths is taught at schools. The suggestion is that can easily be corrected through improved maths education.
Teaching quants to be more like poets is a harder problem because it requires them to change the way they see and interact with the world. Because a well-entrenched quant perspective is very structured, it offers fewer gaps into which alternative viewpoints can be introduced from outside of the frame of reference.
As the world becomes increasingly driven by data, innumeracy will become an increasing problem.
Bridging the gap
Aswath Damodaran is a renowned professor of finance at the Stern School of Business at New York University. He is best known for his work on valuation, corporate finance, and investment strategies. One of Damodaran's unique contributions to the field of finance is his emphasis on the interplay between numbers (quantitative data) and narratives (stories).
He argues that purely quantitative models often miss the bigger picture of the context in which a business operates. Conversely, a story without number can be too vague, or baseless. The best understanding comes from a compelling narrative that is backed and illustrated by data.
To work, the narrative and the numbers must be consistent. For example, if the narrative is one of growth, then the numbers should reflect this. Equally, if the numbers reflect growth, there must be a narrative which backs this up.
The narrative should, for example, explain where the growth would come from. Is it driven by changing customer behaviours, a technological breakthrough, or by expansion into a new market?
Narratives are a great way of dealing with uncertainty. For example, the narrative could explain growth if some future event comes to pass, but decline if it does not. This might even lead to two different sets of forecasts with narrative explanations of the difference between the two. This has far more explanatory power than a purely quantitative model, even one using sophisticated methods like monte carlo analysis.
And finally, narratives are easier to adjust when new information comes to light. Of course, when the narrative does change, it is imperative that you adjust the numbers that support it.
The objective, whether you use narrative or quantitative methods, is the same - to make a decision. And any decision about the future will also entail an element of risk. But, combining that narrative (poet) and quant perspectives in this way, can significant increase clarity and confidence in decision-making.
Conclusion
The world of business strategy is vast and multifaceted. While poets and quants may represent two ends of a spectrum, the future belongs to those who can navigate both realms with agility. In the dance of numbers and narratives, the key is to strike the right balance and integrate the two perspectives.
Next Steps
- Consider where you personally fall on the continuum between poet and quant.
- Consider where each of your team members fall on the continuum between poet and quant.
- Consider whether you processes for developing and executing strategy are weighted towards quantitative or qualitative perspectives.
- Take steps to include additional people or change your processes to increase the degree of balance between and better integrate the poet and quant perspectives.
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