Do we want to play Liar’s Poker? Notes 1

I found two books listed most frequently as favorite books among PF bloggers — Liar’s Poker: Rising Through the Wreckage on Wall Street and A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition. I felt a bit embarrassed that I did not know these two books, though I had thought about getting a job in Wall Street. I decided to make up my ignorance.

I finally got the two books one month after I placed holds on them. By then Yannick and I got very busy with our work. So we decided to optimize our times — each read one and exchange reviews.

Yannick likes numbers, so he got the “Random Walk”. I am more fiction or biographic type, so I picked “Liar’s Poker”.

The first thing that struck me was the author’s comments on “economics”. He noted that, although most arrivals on Wall Street studied economics, the knowledge was never used – actually, any academic knowledge was frowned on by traders. Economics is not really a science, but rather a means by which investment bankers find potential candidates to hire.

This sounds like Michael Spence’s model of job market signaling. I always considere it a drawback in signaling game — Education is useless other than being a signal to the potential employer. Now Liar’s Poker confirmed this assumption with a real life example. I guess that this was one of the very few cases where the assumptions of an economics model hold true in reality. Unfortunately, instead of increasing my confidence in my economics education, it makes me even more disillusioned with the economics knowledge I got from PhD classes.

On the other hand, the book gave us a relief. As the book says, most millionaire traders started their trading business in their early 20’s. We had some sort of regret that we missed the opportunity to be there. Given that I have so many friends working in investment banking, I can’t (or do not want to) believe that the life in Wall Street is like the “jungle” the book described. However, I doubt that the way the IB sales traders and people make money has changed much. They consider it a success by deceiving the less-informed public and ripping off their clients. I do not think that Yannick will ever be able to do this. So this may not be the road for us anyway.

The book also talked about Michael Milken’s junk bond empire. It is interesting to see a different view on Michael Milken from Den of Thieves