This is a book which is guaranteed to make you laugh!!! Yes , it is a book on derivatives but it is written in a great humorous style that it WILL MAKE YOU LAUGH. I bet!

tgm

 

I picked up this book almost 10 months back. Speed read it . Had lent it to one of my friends and hence could not write a summary in time. Now that this book is back with me, Let me try to summarize a couple of interesting things from the book.

This book is mainly about the author’s personal experiences as a derivatives trader. The tone of the book is witty and sarcastic from the word go. It gives a sneak peek in to the so called derivative trading world.

Financial WMD’s

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The very first chapter is about the author’s experience with structured products world. Satyajit Das started his banking career in 1977 and those were times the times when emails to put across deals , be it currency swaps or interest rate swaps. The volume and demand for these swap markets lead to the creation of warehouses where firms started taking principal repayment risk too. From the days of 1970s where everyone was taking Chicago Univs word as THE word on finance, author gives a quick summary of events . CBOT , CME exchange formation , evolution of IR Swaps, Currency Swaps, derivative warehouses , 1987 crisis, 1998 LTCM crisis, Inverse floater which screwed Orange County, etc. The first chapter is a whirlwind tour of crisis, structured product market evolution .

Beautiful Lies – Sell Side

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Sell side, bankers and dealers comprise this side. The constant turf battles between sales and trading personnel, support and front end teams is brought out in this chapter , again with a sarcastic tone :). It also mentions the ethnic cleansing that has happened over the sell side, with various ethnic groups carving a role for themselves in the entire structure. There are a lot of funny acronyms which are introduced to the reader. One set relates to Management Directors. Considering the innumerable MDs at firms, author comes up with acronyms to categorize them. MD/NR ( Managing Director / Not really ). MD/NVI(Managing Director Not Very Important) MD/PLN(Managing Director / Please leave now). FILTH(Failed in London Try Honkers), LBFM( pls read the book to find out what this acronym stands for 🙂 ..or just take a guess as to what a trader posted in Asia would expect as a perk 🙂

I had a wonderful laugh when author ponders over his perspective on equity analysts and the excruciating detail to which they analyse. He wonders whether the equity analyst is analyzing companies or RUNNING companies 🙂 I get the same feeling too sometimes when I see equity analysts who would have picked up some degree in chemistry or some discipline and they give out buy/sell/hold recommendations using extensive mind blowing analysis . God knows from where they motivate themselves to study a company dealing with live cattle/ pork bellies.. I have always always never ever understood the contribution of equity analysts!!! As the author rightly points out, which I agree fully , equity research is just mean to shove reams of pdfs on to clients side so that they just buy in to the document. After all if somebody does a worthwhile research, the firm will instead use it to trade for itself….so, all the beautiful documents you see out there are just good advertising material !! nothing more than that!!

ok, here are some more funny interpretation of org structures from the author

Diversification : Let’s do several things that we dont know anything about badly
Focus : Lets get back to doing what we once did if anybody can remember what is is and how to do it
Decentralization : Massive duplication, confusion and creation of thousands of petty empires
Matrix Structures: Everybody reports to everybody, no one knows who they work for and there is no accountability
Flat organizations: Managers who can’t manage now manage tens of direct reports
Business Process Reorganization: A process by which you cut everything that is essential, leaving only everything that you don’t need.

:):)

True Lies – Buy Side

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Who are the artists on this side 🙂 ? Pension fund managers , Investors, Insurance agencies, banks etc are all the people on this side. This chapter was very very funny. Even though it narrates a couple of crisis that were the result of using derivatives like Proctor & Gamble using IR Swap which blew up, Ashanti gold mines using futures to lock in profits, Walt Disney’s screwed up hedging experience, MG’s fucked up stack trade etc. Overall , if you understand the products or have taken Derivatives 101 course somewhere, you will shudder at the dangerous world of derivatives!!

The best part of the chapter is the author’s take on various investment philosophies and vision statements. Here is a good list that author provides

  • Index Funds :The fund manager has given up trying to beat the market
  • Active Management :Triumph of hope over experience
  • Momentum investing: Shit must be good. Millions of flies cant be wrong 🙂
  • Value Investing: Pure Luck
  • Yield enhancement: You are taking on a whole lot of risk. You will be lucky to get your money back
  • Portfolio Insurance: Hang on, wasnt a return of principal the least that you are entitled to?
  • Structured investment: A con job to charge you more fees
  • Alternative Investment Strategies : Fund manager has no clue on investing..he is merely throws darts!!

    There are a list of USPs and their real meaning that’s provided: here is a sample

  • There is currently a window in the market to execute this transaction : Meaning –It is almost a bonus time and we need to close this deal urgently to make sure we can pay for our new porsches
  • We make markets in all our products at all times : Meaning – If you want to sell this back to us, good luck, sucker

There are many more listed in the book….It is a joy to read such things coming from a veteran derivatives trader!! Not many people are that honest and sarcastic i guess!!

More on this book in my next post….

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