19 June 2020

Flash Boys: A Wall Street Revolt by Michael Lewis

I have really been enjoying Michael Lewis' nonfiction writing (Moneyball, The Blind Side) and decided to give this a try since my husband and I started buying stocks this past year. When I was working for Ivey Business School I had the chance to go to the RBC trading floor and was entranced by it. I have since started trying to understand the market better but it is SO confusing. Anyways, I thought this would be a fun combination of my love of Lewis' writing and my new obsession with the stock market.

Flash Boys is about a group of Wall Street dudes (the ring leader, Brad, is interestingly a Canadian) who begin to uncover the ways high frequency traders are essentially rigging the stock markets, and set out to create an exchange that is 100% fair for investors. If you've watched like, any movie about Wall Street ever, you'll know that the problem with this is that nobody on Wall Street actually cares about things being fair for investors, they care about making money. The book's epigraph is actually a quote from Omar Little on The Wire- "a man got to have a code" which I think sets the tone for the book really well.

Michael Lewis

The actual ins and outs of how they were rigging this market were lost on me. It had to do with manipulating milliseconds (there is actually a whole chapter about the plot of The Hummingbird Project, which was a sub par movie but explains this game of speed quite well). The overall problem seemed to be that investors had no visibility into this speed game, and couldn't possibly know when they weren't on the right side of it.

The U.S. stock market was now a class system, rooted in speed, of haves and have-nots. The haves paid for nanoseconds; the have-nots had no idea that a nanosecond had value. The haves enjoyed a perfect view of the market; the have-nots never saw the market at all."

Brad & his team decided this was morally wrong. They invented a stock exchange where speed virtually doesn't matter, and spend the end of the book trying to convince Wall Street banks that using their stock exchange was the right thing to do. Lol.

I really liked the parts of the books that discussed Wall Street culture, especially as it compared to Canada's stock market culture, but there weren't a ton of these bits.

It was [Brad's] first immersive course in the American way of life, and he was instantly struck by how different it was from the Canadian version. 'Everything was to excess,' he said. 'I met more offensive people in a year than I had in my entire life. People lived beyond their means, and the way they did it was by going into debt. That's what shocked me the most. Debt was a foreign concept in Canada. Debt was evil. I'd never been in debt in my life, ever. I got here and a real estate broker said, 'Based on what you make, you can afford a $2.5 million apartment.' I was like, What the fuck are you talking about?'"

I also always appreciate Lewis' knack for analogies. I still have no further understanding of the stock market after reading this book, but Lewis breaks things down so simply that I at least understand the problem these 'flash boys' are trying to solve.

It was like a broken slot machine in the casino that pays off every time. It would keep paying off until someone said something about it; but no one who played the slot machine had any interest in pointing out that it was broken."

The main issue with this book, for me, is I felt it was pretty unapproachable knowing nothing about the stock market. It certainly didn't teach me how it works, I still don't know the lingo, and it was hard to invest in the story without a full understanding. This is unusual for Lewis' writing in my opinion- I've always enjoyed it specifically because it makes topics I know little about feel so approachable.

Brad Katsuyama (second from left) and the small team that started IEX- a fair stock exchange for investors

I think anyone in finance would find this incredibly interesting, but it fell a bit flat for me. My husband and I have no idea what we're doing with our stocks, we just "ooo" and "ahh" when they go up and "aww" and "damn" when they go down. If anyone knows how to help us please get in touch before we lose our hot tub fund.

And then there is maybe the greatest cost of all: Once very smart people are paid huge sums of money to exploit the flaws in the financial system, they have the spectacularly destructive incentive to screw the system up further, or to remain silent as they watch it being screwed up by others."

1 comment:

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