The Poker Face of Wall Street
by Aaron Brown
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Book Reviews of The Poker Face of Wall Street
Book Review: The best book of its kind because it's the only one of its kind
Summary: 4 Stars
I have now read this book three times and I feel I am beginning to understand it. Even on the first encounter, I found it fascinating. The author is a very interesting fellow and his stories involve many fascinating characters. I came away from it with a new way of looking at human behavior (and therefore poker, markets, politics...name your game).
But on the third slog, I am starting to really appreciate how deep Aaron Brown is. This book really does collapse the distinction between financial trading and gambling - and goes on to conclude that both are (in some circumstances) socially-beneficial. Markets and poker games are both financial ecologies - social games seasoned with risk. Long-term success in either context requires that the player find more than a strategy - he must find a "niche" - a way of profitably existing with others over time.
The problem is that the author is just too damn smart, and his editor did not reign him in properly. The poor editing makes the -highly technical- argument difficult to follow.
Admittedly, Brown has set himself a unique challenge: to translate concepts associated with both poker and finance into layman's terms. This was apparently intended to be a book of general interest, simultaneously an introduction to finance for the poker player, an introduction to poker for finance student.
I understand basic finance, but I had no prior knowledge of poker. Brown attempts to dumb it down by defining his terms at the outset, but he is so smart that he keeps slipping back into the "shop talk" of both disciplines. Example:
On page 54 he tell us -in passing- that professional poker players "often exploit their tax advantage by high-variance play, the kind of thing that leads to random-walk results with large standard deviations."
Then, on page 55 -the very next page- he defines a "good" (as in "goods and services").
Now, if you don't know enough economics to know what a "good" is, then my guess is that you will be utterly lost on the statistical tax strategies of professional poker players.
This sort of thing is pervasive throughout the book. I found myself extremely frustrated with the rambling chapter introducing the rules of the various games of poker. At first, Brown is lucid in setting forth first principles: "Poker is a family of games that share hand ranks and betting rules." But he very quickly gets ahead of himself, devoting a large section to the downside of "calling" without ever defining the (poker) term. (I thought he was talking about options trading at first.)
That said, this is a book that repays close attention, and -if you have the time- it is very well worth the effort.
Book Review: A One-Burp Book
Summary: 4 Stars
Anyone who works on Wall Street senses the truth in Aaron Brown's thesis, gambling is a fundamental brick in the foundation of economic and investment thinking.
Brown has done it all: poker player, options trading, risk and portfolio management and finance professor. He draws on this experience, using poker as a narrative spine; he weaves a tale of the crossroads between finance and gambling, economics and risk.
The resulting book is an insightful, thought-provoking, entertaining, yet frustrating. In many ways it is similar to the seemingly filling meal that leaves you hungry as soon as you burp.
For example, on page 96 Brown asserts that the Crash of 1987 was caused by under-priced exchange-traded puts which lead "people to invest in the stock market without assuming risk." This is a unique and provocative interpretation on a subject in which I have a great deal of interest. The subject is dropped. Six pages later, it is re-introduced with the conclusion that "(f)or financial quants, the revelation was that risk has a price."
How we got there, I am not quite sure. I have re-read the section several times and I am still puzzled. You have a long bull market. The public is buying calls and shorting puts. The professionals are doing forward and reverse conversions, which are tied to the money rate. The options trade where they trade, it seems to me. An explanation of how put pricing triggered a six sigma event is lost. It is an intriguing thought; worthy of exploration. Yet, it remains unexplored.
Another example: Brown assets that Hernando de Soto discovered in the lower Mississippi "the most sophisticated and successful preindustrial economy in the world." Raw materials and finished good were distributed over an area of thousands of miles. It was done without money, writing, long-distance communications, common language or culture.
Brown takes a hunch and attributes it to gambling. Interesting, yet no support is offered. We know de Soto did not find Indian Casinos.
After reading page after page of abstractions, generalizations and unsupported conclusions, I got frustrated. The book rates four stars. Despite Brown's inability to construct and articulate a cogent and articulate argument, he is on to something. Stock trading in Germany is regulated under that country's gaming laws.
Brown is entertaining. Unfortunately, his book leaves, as the academics say, room for lots of addition research.
Book Review: A refreshingly different take on beating probability games
Summary: 4 Stars
Written in an intellectual but comfortable style that doesn't require too much work to decipher, yet still inspires "light bulb above the head" thought from the reader. The author obviously intended on having the book placed on shelves between "Fooled by Randomness" and "The Education of a Speculator."
While it definitely belongs in the same section, this book lacks the artistic genius of those other two works (which both operated around a central theme and masterfully completed an argument for something not quite definable but undeniably present). Poker Face fails to magically tie everything together and leaves one wondering what the moral of the story is a little.
That being said, the ride is quite enjoyable even if it doesn't really go anywhere. The discussions of the role of risk in economic development are epic. The story of Liar's Poker on Wall Street and how the author is single-handedly responsible for defeating it as a hazing ritual is triumphant. Analysis of earlier break-through works by icons such as Black, Thorpe, Sklansky, and others I never knew about is educational and well worth studying.
If you are looking for trading ideas forget it - there are three or four pages explaining some options arbitrage tactics but that's it (those few pages are the best discussion I have read on the subject, though). If you are looking for poker strategy prepare for an exciting discovery, as the author puts on paper some of the greatest stuff written to date about winning poker - and he does it without mentioning poker hands or even specific poker games. Your heads-up play will be taken to a new level if you are able to grasp it and impliment it.
Aaron Brown's work will make you a better risk-taker, and give you a different kind of appreciation for all things financial. You may even develop a firm commitment to leave the ranks of the sterotype middle-class, in one direction or the other. Hey, maybe that was the point?
Book Review: A vital primer on the nature of risk
Summary: 5 Stars
I have to admit an immediate bias in favor of this book. For years, I've been answering questions about gambling with the line, "I play poker. I can't abide by gambling," without ever having a really satisfactory explanation for the difference other than playing against the house versus playing against other players.
Aaron Brown does a phenomenal job of categorizing the nature of risk and where on the spectra of calculable versus incalculable risk and positive versus negative expectation various activities fall. The more we dig into profiles of various risk-based activities, the blurrier the line between investing and gambling becomes.
While the treatise on risk is the heart of the book, it's maybe half of the really interesting content. This isn't a book to teach you how to be a better poker player or a better investor, but it may help you recognize your own preferred risk profile and give you some guidance on what your own strengths and weaknesses are.
Brown's writing style is succinct and engaging. In two pages, he managed to give me more of a fundamental grasp of how option traders make money than an entire reading of Natenberg's Option Volatility and Pricing did (while at the same time making a rereading of Natemberg much more meaningful.)
If I hadn't been recommended this book by a friend, I almost certainly would have picked it up based on the early negative reviews here on Amazon. The reviewers worry that Brown is "telling too much" about the options market, "giving away secrets that aren't his to give," and "will flood the options market with moderately-capable poker players." This seems to be a bit of hysterics, but it's a clear indication to the quality of Brown's narrative.
Book Review: Intruiging Book
Summary: 5 Stars
I almost wish this book was less good. I have a huge pile of readings that I must read, but I keep picking this book up because it's so fascinating. The author uses poker as a framework to tell fascinating stories about risk. It is extremely accessible to the layperson, but the information within is of practical worth to the professional. I have no real interest in poker, but it is a perfect metaphor to illustrate that people's perception of risk is just as important as calculating numeric probabilities. From the beginning, the author provides a framework for taking calculated risks, and illustrates this framework with amusing stories from recent history. I would recommend this book to anyone who wants to better understand the decisions that professional money managers make every day.
I've seen a couple of negative reviews on this page that said something strange about not wanting to see these concepts in print. What a strange comment! In an odd way, it is the highest praise that one could give this sort of book: that its contents are so valuable that they should not have been given away. In any case, the author is not only an executive director of Morgan Stanley, he's also a well known personality in the world of quantitative finance, with an outstanding reputation for helping novices learn to apply their minds to solving problems. Perhaps those other reviewers could provide more than vague insinuations? Perhaps the most honorable thing would be to simply remove themselves.