“They truly believed that the market at the heart of the world’s largest economy had grown too complex, and was likely to experience some catastrophic failure. But they were also trying to put an end to a game they could never win – or control. And so they’d flipped a switch, and sent lots of their customers’ stock market orders to IEX. When they did this they started a process that, if allowed to play out, would take billions from Wall Street and return it to investors. It would also create fairness.” (Flash Boys – p265)
Author: Michael Lewis
Publication Date: 2014
Origin: I first heard about Flash Boys when Michael Lewis was doing the promo tour and I saw his appearance on The Daily Show. However, as it turns out I actually had earlier exposure to some of the content when I read an article Lewis contributed to Vanity Fair about the arrest and trial of Serge Aleynikov; large sections of this article would contribute to two chapters in Flash Boys.
Summary: Flash Boys tells the amazing, inspirational story of a rogue group of Wall Streeters who set out to fix a broken, corrupt financial market system.
My Take: I enjoyed Flash Boys and ripped through it in no time. In full disclosure, I detest market and financial corruption and socially-harmful self-interest, so this was right up my alley. As usual, Michael Lewis has found a scarcely believable story and told it in a manner that pulls you in, making you a part of the world as the story unfolds. Also as usual, the stories within the story are fascinating, outrageous, inspirational, and as memorable as the overall arc itself.
Read This Book If: You’re ready for a tale of hope, triumph, and “doing the right thing” that overcomes the usual corporate greed and destructive, selfish, short-term interests that usually win out on Wall Street.
- A remarkably simple and effective management philosophy
- Thinking of changing jobs? Be careful what you take with you.
Notes and Quotes:
- I’m sure this doesn’t apply only to stock markets, p4: “The world clings to its old mental picture of the stock market because it’s comforting; because it’s so hard to draw a picture of what has replaced it; and because the few people able to draw it for you have no interest in doing so.”
- Since reading the book, I’ve used this quote (from p24-25) more than any other: “In the United States, Brad also noticed, he was expected to accept distinctions between himself and others that he’d simply ignored in Canada. Growing up, he’d been one of the very few Asian kids in a white suburb of Toronto. During World War II, his Japanese Canadian grandparents had been interned in prison camps in western Canada. Brad never mentioned this or anything else having to do with race to his friends, and they ended up thinking of him almost as a person who did not have a racial identity. His genuine lack of interest in the subject became an issue only after he arrived in New York. Worried that it needed to do more to promote diversity, RBC invited Brad along with a bunch of other nonwhite people to a meeting to discuss the issue. Going around the table, people took turns responding to a request to ‘talk about your experience of being a minority at RBC.’ When Brad’s turn came he said, ‘To be honest, the only time I’ve ever felt like a minority is this exact moment. If you really want to encourage diversity you shouldn’t make people feel like a minority.’ Then he left. The group continued to meet without him.”
“If you really want to encourage diversity you shouldn’t make people feel like a minority.”
- This quote from p26-27 inspired me to write this post: “The best way to manage people, he thought, was to convince them that you were good for their careers. He further believed that the only way to get people to believe that you were good for their careers was actually to be good for their careers.”
- I say this at work every so often, that good names just work…it’s so obvious when you find the right one. The context here was a trading tool; from p51: “The tool was always just Thor. ‘I knew we were onto something when Thor became a verb…when I heard guys shouting, Thor it!'”
- p157 teaches us the lesson that altruism doesn’t sell, it isn’t interesting to investors. In a nutshell, the guys were trying to drum up some investment to help them get their new exchange off the ground. When asked why they were launching a new exchange, their answer of “because the current system is corrupt and broken and we’re trying to make things right” didn’t generate much interest. However, when they switched their pitch to “We are long-term greedy”, investors got very excited. While the lesson that altruism doesn’t sell might be unsettling or disappointing, I believe it nevertheless to be very important.
While the lesson that altruism doesn’t sell might be unsettling or disappointing, I believe it nevertheless to be very important.
- p165 starts the sub-story of the Puzzle Masters, which is just really cool. Basically, they got a couple of master puzzle solvers to help to design an ungameable system. How? By finding all the ways to game every idea they had. From p166: “Creating a new stock exchange is a bit like creating a casino: Its creator needs to ensure that the casino cannot in some way be exploitable by the patrons…The trouble with the stock market – with all of the public and private exchanges – was that they were fantastically gameable, and had been gamed.” p166 has a funny story about hiring one of the Puzzle Masters.
- p185: “‘I don’t want to say I’m an idealist,’ he said. ‘But you have a limited amount of time on this planet. I don’t want to be twenty years from now and thinking I hadn’t lived my life in a way I could be proud of.'”
- p191, in the context of the unintended consequences of government regulations: “‘Shining a light creates shadows,’ said Don. ‘If you try to create this bright line, you are going to create gray zones on either side.'”
- Note to self (p198): If I ever want to read about complex systems, check out the book Complexity by M. Mitchell Waldrop and the paper How Complex Systems Fail, by Richard I. Cook.
- p242, of the significance of IEX: “IEX represented a choice. IEX also made a point: that this market which had become intentionally and overly complicated might be understood. that, to function properly, a free financial market didn’t need to be rigged in someone’s favor. It didn’t need in some sick way the kickbacks, and payment for order flow, and co-location, and all sorts of unfair advantages handed to only a small handful of traders. All it needed was for the men in the room and other investors to take responsibility for understanding it, and then to seize its controls.”
- It’s amazing what perspective will do, p254-255: “‘Why aren’t you angry?’ Serge just smiled back at him. ‘No, really,’ said the juror. ‘how do you stay so calm? i’d be fucking going crazy.’ Serge smiled again. ‘But what does craziness give you?’ he said. ‘What does negative demeanor give you as a person? It doesn’t give you anything.'”
“‘What does negative demeanor give you as a person? It doesn’t give you anything.'” (p255)
- A titch sobering, p259: “If the incarceration experience doesn’t break your spirit, it changes you in a way that you lose many fears. You begin to realize that your life is not ruled by your ego and ambition and that it can end any day at any time. So why worry? You learn that just like on the street, there is life in prison, and random people get there based on the jeopardy of the system. The prisons are filled with people who crossed the law, as well as by those who were incidentally and circumstantially picked and crushed by somebody else’s agenda. On the other hand, as a vivid benefit, you become very much independent of material property and learn to appreciate very simple pleasures in life such as the sunlight and the morning breeze.”
- Take some business strategy and mix it with some “do the right thing”, and you get this, p265: “By December 19, 2013, the people newly installed on top of Goldman Sachs’s stock market operations, Ron Morgan and Brian Levine, wanted to change the way the market worked. They were obviously sincere. They truly believed that the market at the heart of the world’s largest economy had grown too complex, and was likely to experience some catastrophic failure. But they were also trying to put an end to a game they could never win – or control. And so they’d flipped a switch, and sent lots of their customers’ stock market orders to IEX. When they did this they started a process that, if allowed to play out, would take billions from Wall Street and return it to investors. It would also create fairness.”
- Argh, it sickens me how many incredibly talented people go this route, p266: “The more money to be made gaming the financial markets, the more people would decide they were put on earth to game the financial markets – and create romantic narratives to explain to themselves why a life spent gaming the financial markets is a purposeful life.” On a related note, on my to-read list I have Smart People Should Build Things.
“The more money to be made gaming the financial markets, the more people would decide they were put on earth to game the financial markets – and create romantic narratives to explain to themselves why a life spent gaming the financial markets is a purposeful life.”