Liar Liar

One of my goals for this year is to read three non-fiction books. I know that doesn’t sound like many but generally, I read books for enjoyment, not for education. Of course, the two are not really mutually exclusive but I’ve yet to find sci-fi investing books out there! 🙂

I usually read around 30-35 fiction books a year and I think 3 non-fiction is about all I want to attempt really.

Anyway, the second book I’ve read is ‘Liar’s Poker‘ by Michael Lewis.

Written and set in the 1980s, this semi-autobiographical book charts the rise and fall of investment bank Salomon Brothers (which ultimately became part of Citicorp in the late 1990s) and documents the greed, ambition and excesses of the people (including the author) who worked for the company and the bond trading industry.

Salomon Brothers made an absolute killing selling mortgage bonds to customers (including other banking institutions) who didn’t really understand what they were buying. In the days before the internet, the traders had all the info (and weren’t always truthful) and customers, fearful they would miss opportunities, would jump in with their money without doing their own research (yep, that old chestnut!).

The regulators were ineffective as they were always playing catch up on the new, inventive and complicated ways financial products were being structured to make profits. The bond traders and investment banks were unscrupulous and unrelenting in their greed, with no thought of consequences.

The amounts of money involved were jaw-dropping – it was scary to read about what the traders got away with, their audacity, the lies they told and how greed ultimately had businesses investing in things they didn’t have a clue in.

Big Swinging Dicks

All the traders aspired to be ‘Big Swinging Dicks’, the ones who made the most money and commanded the biggest bonuses. Yes, even the very few women who were able to fight their way past extreme gender inequality aimed to be a BSD!

Liar’s Poker

What was ‘Liar’s Poker’? It was a high stakes gambling game which the bond traders played, using bluffing and psychological tactics.

Anyway, I thought this was a good read (thanks for the recommendation, Jim), with a fair amount of humour and kept my interest throughout. I’d be tempted to read another of Lewis’ books. I know he wrote ‘The Big Short’ though having seen the movie adaptation, I may try one of his other ones.

What did I learn from this book?

Don’t invest in things you don’t understand and don’t be tempted by huge profits.

Have a great weekend all – it’s apparently going to be a sunny one! 🙂

19 thoughts on “Liar Liar

  1. Hi Weenie,
    Thanks for sharing – I haven’t come across the book but sounds like it could be quite interesting once I am up to date on my reading.
    The biggest thing for me is what you took away from it… “Don’t invest in things you don’t understand and don’t be tempted by huge profits”
    This really shouldnt be understated – if you are new to investing keep it as simple as possible (i.e. avoid derivatives and CfDs etc.). Anything with high returns are either very high risk (think AIM or worse) or fraud…!
    I remember reading about the Bernie Maddoff ponzi fraud – Goldman Sachs went in and investigated years before it was uncovered and they could not work out how he was making the returns – so they didn’t invest.

    • Great advice. Out of interest where would you place p2p on this risk spectrum? I’ve been using ablrate and in the current market 10 to14 % returns are to me in the too good to be true bracket and yet I’ve not invested money I can’t afford to lose. I’m diversified across loans so only 100 or so at risk and I think! I understand the product. Have you considered branching out I to this area?

      • Hi Fatbritabroad,
        Love the name 🙂 I put p2p in the high risk area, and havent invested in it at present as I worry about the level of consumer debt we have in the west and, until this year I think, you couldn’t invest tax efficiently.
        I may consider adding to it in the future as the returns are higher but it is still a relatively new area of finance so for now I am happy to steer clear and forgo those high returns!

    • Hey FiL
      I have an idea of what derivatives and CfDs are but they’re not something I want to find out more about or to understand more about, I’d rather keep it simple!

      Shame we’re all ‘investing’ in the biggest ponzi scheme going, ie NIs/State pension but what can we do…?

      • Hi Weenie,
        Absolutely – as the saying goes.. “Keep It Simple, Stupid” 🙂
        I don’t invest in them either, but I may do in the future when I have paid off my mortgage, am filling both ISAs and Pensions to the max each year, and have spare cash left over – but not required…
        I’d agree, we cant do anything about the state pension, and even worse I expect that by the time I get to draw it that it will be means tested so I wont get anything from it, so I am planning on a zero return on any tax I pay.
        I wonder if I could opt out of tax… 😉

  2. One of the investment writers in this week’s Tel was recommending the purchase of shares in an Investment Trust, the distinguishing characteristics of which were (i) it invests in financial instruments I don’t understand (ii) the economic shares to buy are non-voting shares, and (iii) the chaps who run it are spivs.

    Political incorrectness gawn mad.

    • Cheers for the link, Jim, will check it out – I do like his style of writing.

      I thought the screen adaptation of The Big Short had more than enough financial stuff so probably not going to try the book!

  3. I’m halfway through Professor Edward Thorp’s autobiography (A Man For All Market$) – it’s a bit drawn out, but if you’re interested in Vegas and Wall Street then it’s one to consider.
    I’d been well aware of his blackjack card counting system for many years, and was in complete awe of the genius, but i kicked myself very hard when i learned only recently that for many years he’d also been running an extremely successful hedge fund. Had i known about this back in the day when the fund was operational i wouldn’t have hesitated in trying to invest with him.
    (PS – Thorp was aware of Madoff’s little game about ten years before the news surfaced. This gets a mention in the book).

    • Cheers for the tip, KC – I’ve always been interested in the concept of card counting (not something I would attempt, mind). Too late to invest in his fund?

      Schemes that are too good to be true (eg Madoff’s scheme) are just that so avoid at all costs!

      • Sadly he packed up his second venture in 2002 and as he’s 85 years young now (check out his picture – life’s been very good to him) i suspect that’s probably it for his investment funds. Please just don’t tell me in a years time that he’s launched a third fund that i’ve missed out on!
        ps – i’ve just turned down the offer of some zero dividend preference shares in Utilico Finance Ltd. One of the reasons (other than they’re only paying 4.75%) being that the Board have for some reason decided to hold this years AGM at….the Mandarin Oriental Hotel….in Bangkok. I can’t imagine why a London listed stock that’s registered in Bermuda would choose to travel all the way to Thailand for an AGM. If anyone happens to know of a logical reason i’d love to hear.

  4. When I joined a bank years ago two of the first things that happened were being lent a copy of Liars’ Poker and being told the collective noun for bankers is a wunch.

  5. Great review weenie!

    Loving the fact that one of your keyword titles was BSD… bet you get a few disappointed googlers arriving on site because of that one 🙂

    I really need to watch The Big Short and read this book! I thought they also made a film of Liars poker but looks like it never came out so far:

    Did any of the traders ever get punished in any way? Jail time? Fines? Etc…? I am guessing not but would be interesting to know.


    • Hey TFS
      Although traders lost their jobs, I don’t know if they were jailed. The CEO was fined and Salomon Brothers themselves were fined around $300 million for some dodgy trading in 1991.

  6. Hello Weenie,

    Great post and review – Liars Poker is still one i need to read myself.

    One you might like is ‘Straight to Hell’ by John LeFevre. I literally couldn’t stop reading.

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