Liar's Poker

by Michael Lewis

Foolish names and foolish faces often appear in public places.

The first thing you learn on the trading floor is that when large numbers of people are after the same commodity, be it a stock, a bond, or a job, the commodity quickly becomes overvalued.

“In the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative the conclusion we draw therefrom…. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience.”

The only thing history teaches us, a wise man once said, is that history doesn’t teach us anything.

In a period of constant financial innovation, the youngest people assumed power (and part of the reason young people got rich was that the 1980s was a period of constant change).

I’m now convinced that the worst thing a man can do with a telephone without breaking the law is to call someone he doesn’t know and try to sell that person something he doesn’t want.

Strictly speaking, this was a truism. Salomon Brothers was a corporation: Phibro Salomon Incorporated. But I knew what he meant. We liked to think we were free from most of what that terrible world implies: superfluous meetings, empty memos, and stultifying hierarchy.

But the disinformation was not what bothered Dash about the book and the bowl. Once you knew the truth about the firm, you realized it was far better to disinform than to inform. And if our leaders were going to lie about their methods, they were almost by necessity going to tell a whopper. What bothered Dash was that Salomon Brothers had actually spent money to make these things. A book and a bowl? Who gave a shit, he said, about a book and a bowl? He’d rather have the money. What’s more, he added, the people who worked at Salomon in the old days would never have done such a thing; they, too, would rather have had the money. The book and the bowl violated what Dash considered to be the Salomon ethic. And that’s why he told me to short the stock.

Rumors were far more relevant than bad jokes because rumors moved markets. It was widely believed that a small, bald man in a grubby room in Moscow started all rumors to wreak havoc on our Western market-based economy. The rumors bore an uncanny resemblance to whatever people feared most. Often the most unlikely of rumors caused panic in the markets. In two years, for example, Paul Volcker resigned from his post as chairman of the Federal Reserve seven times and died twice.

He disapproved of workdays longer than eight hours because, he said, “you then arrive at the office in the morning with the same thoughts you left with late the night before.”

The word stockbrokers use for this approach is contrarian. Everyone wants to be one, but no one is, for the sad reason that most investors are scared of looking foolish. Investors do not fear losing money as much as they fear solitude, by which I mean taking risks that others avoid. When they are caught losing money alone, they have no excuse for their mistake, and most investors, like most people, need excuses.

The markets in the long run are no doubt driven by fundamental economic laws—if the United States runs a persistent trade deficit, the dollar will eventually plummet—but in the short run money flows less rationally. Fear and, to a lesser extent, greed are what make money move.

spent much of my working life inventing logical lies like this. Most of the time when markets move, no one has any idea why. A man who can tell a good story can make a good living as a broker.