Financial Artistry not Financial Engineering $$

Seth Godin just published a great book, Linchpin: Are You Indispensable? (Amazon Affiliate Link). In his book, Godin makes the case for why first-class creative/inventive/artistic activities are at the top of the pyramid for value creation for individuals in a connected Internet society.

In finance, one might think that selling and financial engineering are the main drivers of value creation. However, if we examine examples of extreme value creation in that field, we reach a different conclusion. Artistic activities fuse with finance to deliver outstanding results. A few examples follow:

- Warren Buffett has leveraged his investment using insurance float to generate extraordinary returns. 

 - Howard Lindzon has built Stock-Twits using the emergence of Twitter as a broadcast station for traders and investors.

 - Thomas Peterffy started Timber Hill as a floor options market maker and transformed it into Interactive Brokers, a global online broker with superior technology and low trading costs.

- D.E. Shaw created one of the largest quantitative hedge funds in the world.

These pioneers thought outside the box and created revolutionary financial models. Financial artistry drove their creation processes.

At Bigger Capital, designing a trading algorithm is much more a creative and inventive process than a purely mathematical process. We approach this endeavor uninhibited, like a child. Neoteny becomes the cornerstone of the creative process (see Sandbox post). We play in the sandbox and try lots of things. We start with raw sand and water and sculpt the algorithm into an appealing financial product. The process is not only about finance, mathematics, and statistics: it is also about creativity. We never know in advance where the dark alleys will lead us. We iterate until we get a desirable outcome.

 The new cool financial tools allow anyone with a laptop and an Internet connection to become an innovator. If you have dreamed up a trading strategy, it's time to stop watching the ticker screen. Go to the sandbox and start shaping your strategy into a process you can code and enjoy the benefit for the rest of your life. Compound that creative process!