Few appreciate modern finance, in all its complexity and volatility. Even among practioners, there is a wide range of opinions concerning the value of their profession.
Position 1: This stuff is bullsh*t. But it provides the best risk-adjusted economic return for my high powered brain.
Position 2: If we can improve the efficiency of capital markets and resource allocation by even a fraction of a percent, the benefit to society over time is enormous, albeit invisible to the casual observer.
Charlie Munger, Warren Buffet's long time investment partner, on the brain drain into finance:
I regard the amount of brainpower going into money management as a national scandal.
We have armies of people with advanced degrees in physics and math in various hedge funds and private-equity funds trying to outsmart the market. A lot of you older people in the room can remember when none of these people existed. There used to be very few people in the business, [and they were] who were not very intelligent. This was a great help to me.
Now we have armies of very talented people working with great diligence to be the best they can be. I think this is good for the people in it because if you know enough about money management to be good at it, you will know a lot about life. That part is good.
But it's been carried to an extreme. I see prospectuses for businesses with 40-50 people with PhDs, and they have back tested systems and formulas and they want to raise $100 billion. [Reference to Jim Simons of Renaissance Technologies.] And they will take a very substantial override for providing this wonderful system. The guy who runs it has a wonderful investment record and his system is a lot of high mathematics and algorithms with data from the past." [...]
"At Samsung, their engineers meet at 11pm. Our meetings of engineers (meaning our smartest citizens) are also at 11pm, but they're working on pricing derivatives. I think it's crazy to have incentives that drive your most intelligent people into a very sophisticated gaming system."
