Science and technology revolutionized the early stock market, beginning with telegraphy and Thomas Edison’s stock ticker machine.  Later on, computers made almost instantaneous transactions possible, lessening the need for specialists and bringing aboard wider pools of investors, including robotic traders directed by computer algorithms. Nowadays, researchers and investment managers such as Dr. David Leinweber, of Lawrence Berkeley National Laboratory’s Computational Research Division’s Center for Innovative Financial Technology, seek to safeguard the market from fraud and excessive fluctuations by drawing upon tools previously used only for scientific research.

In his December 5th talk at San Francisco’s Mission District restaurant Picaro, Leinweber placed his team’s work in a historical context. In this way he articulated the role scientists and academics can play in this practical aspect of our society, the past and potential contributions of the “Nerds on Wall Street,” the title of his latest book.

Over tapas and sangria, a group of quirky freelance writers and university communications personnel attempted to grasp the complexity of today’s markets and what we might need to oversee them. After watching the demise of the dot-com and housing bubbles, many understand the importance of relying on common sense and not getting caught up in irrational speculation. However, how can we apply common sense in a world where computer programs automatically trade millions of shares per millisecond?

Leinweber and others are working to create and develop advanced tools to monitor and temper fluctuations stemming from the technology operating our capital markets. For example, recently we’ve seen companies’ stock price crash in less than a minute, due to faulty trading algorithms rather than estimates of the firm’s value and future earning power.  He and his team aim to put infrastructure in place that will detect these occurrences and ‘break the circuit’ leading to this kind of automated panic.

The level of data-intensive analysis required to accomplish this has never before been applied to finance. Yet it has become necessary nowadays, with the size and scope of our global trading. Also, our capital markets now involve multiple complex systems working together, and the combination can introduce instability, even when each individual system is stable on its own. Luckily, recent advances in computer technology have increased our capability to process large volumes of information, making the tools our markets require feasible to build.

In Nerds on Wall Street, which he outlined at Picaro, Leinweber also dissects a variety of analytical rules and guidelines hawked by financial advisors to help investors maximize profit. According to his data analysis, many of them prove rather arbitrary and haven’t brought clients the promised advantages. Some even sound humorous, relying upon certain teams’ performance in the Super Bowl or on the national mood at certain times of the year. While common sense can help people avoid many foolish investments, devising an optimal investment strategy now involves more than inferring a few rules of thumb.

Although he works as a quantitative investment manager, providing advice on how dinner guests could invest wisely was beyond the scope of Leinweber’s talk. He did, though, provide insight into the research behind Nerds on Wall Street, which has received mixed Amazon reviews but many endorsements from business journalists and professors of finance and management. The book intends to illuminate in a clever, funny way the technology operating and safeguarding our markets and seems an interesting and unique read.

Cristina Deptula is a writer from San Leandro, California. She can be reached at cedeptula@sbcglobal.net.