Liar’s Poker will not give you many good trading ideas. It will also give a rather out dated view of how the financial markets operate today as it misses out on the computer revolution in the market. However it is useful in setting the rather mad, borderline insane, scene that makes up for many professional financial market operations. And this in itself leads to a very important lesson.
Firstly this is a true story. Michael Lewis was an art history graduate who got a job on Wall Street. In itself this was unusual as the days of a bright graduate from a good university with a good generalist degree getting into Wall Street firms was declining. The age of the specialist was already starting in the 1980s. But what a time the 1980s were!
In the firm that Lewis was in (I won’t spoil this too much by naming the firm) another thing that was dying was the partnership ethos. This was still clinging with the avid loyalty shown by some of the old guard to their firm, one of whom was loyal because when he was a new employee a partner, without question, paid for his wife’s much needed medical expenses. But this was dying and a new breed of money conscious trader was emerging.
Lewis worked on the desk that dealt with mortgage securities. This is not the interesting part – although the idea that mortgage securities is a new thing should be put to rest. What is interesting is the testosterone soaked environment that the traders were playing in. This is the real eye opener of the book. Billions of dollars were governed very directly by greed and fear.
It is often lamented that the amateur investor cannot compete with the resources available to professional investors. This is true to an extent. Arbitrage opportunities will never be available with the growth of superfast computers.
What the small investor has that many professional investors lack is the most valuable commodity. Sanity.