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Book Review - The Quants by Scott Patterson  The one consistently recurring theme in The Quants is gambling. Ed Thorp, who according to Scott Patterson is the godfather of a quantitative based approach to investing is also the author of the Blackjack card counting classic, Beat the Dealer and the subsequent primer on a quantitative approach to investing - Beat the Market. Scott Patterson is a staff reporter at The Wall Street Journal and in The Quants he tells the story of several different men (and a couple of women) who used their incredible quantitative skills to build some of the most powerful hedge funds of our times. The book begins (and ends) with what looks and sounds like a set piece, the Wall Street Poker Night Tournament, starring the kings of the quantitative universe - Peter Muller of PDT, Ken Griffin of Citadel Investment Group, Cliff Asness of AQR Capital Management and Boaz Weinstein of Saba. Each of these men has made hundreds of millions of dollars on Wall Street using their mathematics backgrounds and each has a fascination bordering on obsession with poker. The way the book is set up, you get the impression this story will be told through this selected cast of characters, much like how in The Big Short Michael Lewis focuses his attentions on a small group of hedge funds managers to tell the story of the financial crisis of 2007 and 2008. Unfortunately, Mr. Patterson is not quite as skillful a story teller as Mr. Lewis. I quickly lost track of the main characters, as Mr. Patterson moves the spotlight to a long list of supporting cast members. There is Ed Thorp as I already mentioned, Jim Simons of Renaissance Technologies, Aaron Brown, Paul Wilmott, Benoit Mandelbrot, Bill Gross and others who are given attention is such a way as to interfere with the flow of the narrative. Another flaw of Mr. Patterson's style is that he does not seem to maintain a consistent style - there are some chapters where all the main protagonists are covered, there are some focused on a specific person and then there are some that are descriptive of a situation without focusing on any one character. This muddled style leads to an unsatisfying reading experience. Since I'm on a roll here, let me add one more criticism - The Quants manages to give only glimpses of the mechanics of how money is made by the Citadels of the world. It does not get technical, unfortunately. In spite of my overall disappointment with the book, I recommend reading it. It is a good introduction to the stars of the quantitative hedge fund world and at about 300 pages not irksome in length. Labels: 2010, april 2010, AQR, boaz weinstein, citadel, cliff asness, ed thorp, finance, ken griffin, non fiction, PDT, peter muller, quantitative finance, quants, saba, wall street
Book Review - The Big Short, Inside the Doomsday Machine by Michael Lewis  I just finished reading The Big Short, Michael Lewis' thrilling account of three hedge funds that managed to see the crisis in the financial markets years before others had a clue as to what was going on. At a mere 250 pages, I was skeptical. I like my books to be fat and detailed, an obviously unscientific measure that failed miserably in the case of Andrew Ross Sorkin's Too Big To Fail. Sorkin's essentially journalistic account of the events of 2007 and 2008 compares poorly with Mr. Lewis' work. At the very least, The Big Short gives a fleshed out account of the events that exacerbated the financial crisis through the actions of four major players - big Wall Street banks from Goldman Sachs to Merrill Lynch, the three major rating agencies, hedge fund managers who predicted the crisis, and investors around the world who got suckered into buying some really shitty financial products that they did not quite understand. We've heard two of these stories in the last couple of weeks - the Magnetar trade as covered by This American Life and ProPublica and the SEC case against Goldman Sachs involving ABACUS and John Paulson's hedge fund.The heroes of Mr. Lewis' account are a quirky group of hedge fund managers with rather unconventional backgrounds. It is testament to Mr. Lewis' abilities as a writer that you end up rooting for a bunch of guys who saw the delusion of the wider market and made hundreds of millions of dollars by betting against just about everyone. Dr. Michael Burry is a neurologist by training, has one functioning eye and suffers from Asperger's syndrome - he's the guy who saw the housing bubble coming back in 2003 and ended up making hundreds of millions through his fund, Scion Capital. Jamie Mai and Charlie Ledley were a couple of 30 year olds with no obvious training or talent in money management. They started a hedge fund from a garage in Berkeley and ended up making some legendary profits by successfully betting that the upper, double-A rated tranches of mortgage CDOs backed by subprime loans would fail. The third hedge fund manager, with a more conventional background was Steve Eisman of FrontPoint Partners. All of these talented but also lucky men were connected by another interesting character, Greg Lippmann of Deutsche Bank. If the idea of betting against the subprime mortgage industry was a virus then it originated with Dr. Michael Burry who infected Mr. Lippmann, who in turn spread it to a whole bunch of other money managers on and off Wall Street. So far I've given the benefit of the doubt to the TARP rescue package and its necessity towards 'saving the American ecnomoy'. After reading The Big Short, I'm not so sure. There are passages in the book that inspire incredulous disbelief. I'm not a fan of populist anger at a single behemoth called "Wall Street" but it is hard not to feel disgust at the greed and incompetence of some of the most gilded names in modern capitalism. The Big Short is required reading for anyone wishing to understand what happened on Wall Street in the last three years. Highly recommended. Additonal recommended reading and media Dr. Michael Burry's April 2010 Op-Ed in the New York Times - http://www.nytimes.com/2010/04/04/opinion/04burry.html?scp=12&sq=burry&st=cse Michael Lews and Dr. Michael Burry on CBS News' 60 Minutes - http://www.cbsnews.com/video/watch/?id=6298038n&tag=contentBody;housing Dr. Michael Burry's "A Primer on Scion Capital's Subprime Mortgage Short", published in November 2006 - http://www.scioncapital.com/PDFs/Scion%202006%204Q%20RMBS%20CDS%20Primer%20and%20FAQ.pdf Labels: 2010, april 2010, ben hockett, book review, charlie ledley, cornwall, finance, frontpoint, greg lippmann, history, jamie mai, michael burry, michael lewis, scion capital, steve eisman, wall street
Dead Aid by Dambisa Moyo
 Dead Aid is a 150 page book with a 24 page bibliography - so it reads more like a long white paper than a book. Dambisa Moyo has an impressive resume, much alluded to in both the book jacket and the foreword by Niall Ferguson. The author has worked for the World Bank and Goldman Sachs and she has a PhD from Oxford University. Impressive no doubt. Even more impressive is the fact that she was born and raised in Zambia so her profile fits neatly into the "Solutions to Africa's problems by Africans" paradigm. The book itself makes its case almost clinically, backed up by statistics and research papers from an entire spectrum of economists. Dead Aid is divided in two sections, The World of Aid, which examines the 'aid-economy', the players and the harmful affects on African countries' dependence on western aid. The second section, A World Without Aid proposes several venues open to the developing countries in Africa to raise money and be independent - the most important being trade and raising capital from the markets. Ms. Moyo manages to connect a lot of different African ailments to aid, from corruption to dictatorship and she makes a convincing case. Her solutions make sense as well - at least to a strong believer in free trade like myself. The hopelessness of it all is that it is almost impossible to imagine the West will roll back its Aid of Africa model that has failed so consistently and for so long. The book's main weakness is that it makes for almost dreary reading. Ms. Moyo may be a brainy economist, she is not a writer. The book suffers from a dearth of wit and style. The author does try to indulge in a hypothetical by creating the composite African country of Dongo and examinig how the country may funciton if her suggestions were realized. But in the end her vision reads less like a fully realized painting and more like a stick figure drawing. I recommend reading the book, only because it serves as a starting point for examining the issue of tackling the many problems of the African continent. Labels: 2010, africa, aid, dambisa moyo, development, economics, economists, finance, microfinance, world bank, zambia
Too Big to Fail by Andrew Ross Sorkin
 I had mixed expectations from Too Big to Fail. Considering we are still very much in the thrall of one of the worst financial crises of the past century, it is unfair to expect a single book to provide a complete perspective. Andrew Ross Sorkin does not attempt to explain how or why we got into the events of 2008. The book's objective is very clear - to chronicle what was happening in the financial markets during 2008. At this task, the book succeeds. It has an impressive cast, from Treasury Secretary Hank Paulson to the CEO of Lehman Brothers, Dick Fuld.About three quarters of the book is about the Lehman collapse. The author seems so focused on the investment bank that you get almost no visibility into what was happening at say Citibank or AIG, though AIG does get some attention. The book refuses to be technical with Sorkin sticking to a journalistic tone. That I think is this account's greatest shortcoming - if you hope to understand what specific problems were being faced by Lehman Brothers before its failure, the reasons it found itself under attack by short sellers, you won't find the explanation here. Ultimately, this book is a good record of what happened but I think my reading list needs a lot more books to understand the why. I'd give the book a half hearted recommendation Labels: 2010, andrew ross sorkin, book review, february, finance, financial crisis, lehman brothers, non fiction, review, wall street |
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