The Poker Face of Wall Street (Hardcover)

by Aaron Brown (Author) "This book is about how to gamble and win..." (more)
Key Phrases: United States, Liar's Poker, Wall Street (more...)

Editorial Reviews

From Publishers Weekly
If you're looking for tips on becoming a better poker player, you've probably come to the wrong place. Brown does cover the game's basics and shares plenty of stories from his early card-playing days, which include Harvard games with the likes of Scott Turow. But he has much bigger stakes to discuss in this upbeat and entertaining guide. Drawing on his background at Morgan Stanley (where he's an executive director) and other financial institutions, Brown proposes that "finance can only be understood as a gambling game" and vice versa—and though the material can be rough going for those without some investment training, he's very convincing once all the cards are laid out. In an extended historical example, Brown shows how the economy of colonial America was jump-started by the introduction of faro dealers into French Louisiana. He sees the current financial market as filled with similar wealth-generating potential and believes "taking risks just makes sense" in such an opportunity-rich climate. Poker, then, becomes a tool for learning how to evaluate and embrace financial risk. Brown's model is instantly graspable, but so contrary to the conventional wisdom on both economics and gambling that it may well spark debate. (Apr.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

Review
Gamblers, be they poker players or stock traders, often talk in terms of limiting risk, turning a steady profit and keeping their heads down.
Not Aaron Brown, a Morgan Stanley executive director and card player who specializes in quantitative finance. He says the secret to winning is to embrace risk, not avoid it.
Gambling is more than a sucker's game in which the house wins even when it loses, he says in “The Poker Face of Wall Street.”

Gambling lies at the heart of economic institutions, he writes, and the reason is obvious: ``In order to win, you must take risk.''
Brown's book is both a how-to guide for poker players and an analysis of risk-management techniques he learned on trading floors at banks like Citigroup Inc. and JPMorgan Chase & Co. He convincingly argues that card strategies apply to investing, and he drives his thesis home with real-life examples.
Whether on the Street or on the Strip, Brown steers a course through the choppiest waters in hopes of netting the biggest rewards. Playing it safe is fine for the meek middle classes; he's writing for nonconformists with outsize egos.
Random Walk

“I've never met a successful poker player or trader who didn't believe he or she was better than everyone else,'' Brown writes. If you have that kind of faith in yourself,” it's impossible to settle for what everyone else has, however comfortable that is in absolute terms.'' Besides, he says, risk motivates and creates opportunities for the best people.
Brown couples such arguments with a knack for explaining mind-boggling concepts in a style that's part Ernest Hemingway, part Burton Malkiel, the Princeton University professor who wrote ``A Random Walk Down Wall Street,'' the bible of believers in the efficient-market hypothesis. The result is an engrossing look at why humans take risk -- and why those who avoid it at all costs tend to lose, both at poker and in life.
Malkiel's 1973 classic suggests that chance plays a deciding role in financial markets and that a blindfolded monkey can pick stocks as successfully as most portfolio managers do. Many investors have concluded from this that the only sensible course is to plow their money into index funds.
Don't Despair

Brown has no real beef with indexers; he's just convinced you can beat the average, even shoot for the moon, by taking on more risk. He juxtaposes, for example, the more than $1 billion George Soros won by betting against the British pound in 1992 with a card player who learns from past hands what an opponent is apt to do next. Past behavior can predict future actions.
You may end up in tight spots, Brown concedes. “The only assets you can count on after a loss are the ones inside you: your character, your talents, and your will,” he says.
What about gamblers whose wagers go massively awry, as they did at Long-Term Capital Management LP? That mess resulted from poor risk management, Brown says.
Far from being a frivolous pastime, poker helped build the U.S., Brown argues. As Americans pushed West in the 19th century, poker games allocated scarce resources in frontier towns, leaving winners with enough cash to start businesses in places that lacked banks.
Gates, Kerkorian

That tradition lived on through the 20th century as billionaires-to-be Bill Gates, H.L. Hunt, John Kluge and Carl Icahn got their first stakes in poker games. Kirk Kerkorian funded his first company, Los Angeles Air Service, with poker winnings. Hunt bet everything he had in a poker game and won his first oil well. Capital flowed from the luck of the draw and the skill of the bluffer.
Bluffing is misunderstood by most players, Brown writes. You should bluff only with your weakest hands, which are bound to lose anyway, he says. If you make a habit of this, your opponents will think you're bluffing when you have four aces. They'll stay in the game and get creamed.
Brown backs up these tips with examples culled from his own bets on futures desks: “When you do trade, it lights you up; you know you are alive. You're plugged into a network that lifts you up to the sky or plunges you down to the depths. You never want the market to close.”
This, he says, is like the thrill a poker player knows when he fills a royal flush -- or the agony he feels when an opponent draws out a higher straight. (Bloomberg News, April 27, 2006) 

If you're looking for tips on becoming a better poker player, you've probably come to the wrong place. Brown does cover the game's basics and shares plenty of stories from his early card-playing days, which include Harvard games with the likes of Scott Turow. But he has much bigger stakes to discuss in this upbeat and entertaining guide. Drawing on his background at Morgan Stanley (where he's an executive director) and other financial institutions, Brown proposes that "finance can only be understood as a gambling game" and vice versa—and though the material can be rough going for those without some investment training, he's very convincing once all the cards are laid out. In an extended historical example, Brown shows how the economy of colonial America was jump-started by the introduction of faro dealers into French Louisiana. He sees the current financial market as filled with similar wealth-generating potential and believes "taking risks just makes sense" in such an opportunity-rich climate. Poker, then, becomes a tool for learning how to evaluate and embrace financial risk. Brown's model is instantly graspable, but so contrary to the conventional wisdom on both economics and gambling that it may well spark debate. (Apr.) (Publishers Weekly, March 6, 2006)

"A new book by Aaron Brown, Morgan Stanley's quantitative expert, aims to have investors (and poker players) apply the connections [between their crafts] for profit.... While the book may be the first attempt to help individual investors profit from a better understanding of the art of gambling, behavioural finance professors have employed gambling and investing decisions to explore how individuals behave when it comes to financial decisions....
While the professionals may understand this, most individual investors have not embraced the notion - something Mr Brown aims to rectify with his book. There may be few individuals better suited to take on such a controversial argument. The Harvard and University of Chicago-trained quantitative strategist has helped top-tier Wall Street firms manage uncertain risks for more than two decades. Mr Brown is also a life-long poker player who has shared the table with Wall Street bigwigs, Nobel Prize-winning researchers and world champion poker players.
In exploring the intrinsic links between gambling and investing, Mr Brown mines a rich vein of economic history and draws conclusions that may surprise. He demonstrates how gambling was at the centre of economic development in many river-network societies - explaining how the highly leveraged "soft banks" in the American frontier are much like modern poker houses and why it is no coincidence that futures markets and poker were invented in the same time and place, the American west of the 19th century.
More important than his historical research, however, are his explanations of the inner workings of poker hands and trading. Many casual players may feel poker is about intuition and trying to get a gut feeling from the player across the table. But Mr Brown's book leaves the impression that poker might be considered a type of quantitative investing where rapid processing of statistical probabilities can greatly enhance one's long-term returns. He also shows that while hand to hand and trade to trade markets may be random, the cumulative effect of previous trades (or hands) weighs heavily on future outcomes....
Similarly, Mr Brown provides many examples of how investing involves a careful application of uncalculated risks. These include George Soros' massively successful bet that the British pound was worth less than the amount the central bank was aiming to set against the D-Mark. He also offers more analysis of how to make money from the spreads in various dated options.
The bigger impact of Mr Brown's book is to get investors to rethink how they view placing bets with their money. Our understanding of the markets may be moving further away from the comforting notion of efficiency and steady returns and more toward an acceptance of uncertainty and incalculable risks.
Investors who recognise this will hold the stronger hand."—Steve Schurr (Financial Times, March 2006)

"[Brown] convincingly argues that card strategies apply to investing, and he drives his thesis home with real-life examples." (Bloomberg.com, May 2006)

"The personal stories are one of the most delightfully suprising aspects of the book. Despite the quantiative subject matter, it is exciting and easy to read. The book clearly illustrates that poker and finance are as much about people as they are about formulas and statistics." -- Michael B. Miller (GARP Risk Review, May/June 2006)

"The Poker Face of Wall Street is a sprawling, idiosyncratic, and sometimes poker-obsessed book filled with nuggets about American history and finance, from poker in gold-mining camps to the deeds of picaresque Scottish adventurer John Law, who used card games to grease the wheels of commerce in France's Louisiana Territory. ... Long hours at the poker table have given Brown a unique, not to say jaded, perspective on the hallowed institutions of modern finance." (BusinessWeek, June 2006)

"…if you fancy yourself as a trader...then this book is an excellent place to start." (Financial World, July 2006)

See all Editorial Reviews

Product Details

• Hardcover: 368 pages
• Publisher: Wiley (March 31, 2006)
• Language: English
• ISBN-10: 0471770574
• ISBN-13: 978-0471770572
• Product Dimensions: 9.1 x 6.3 x 1.5 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 3.9 out of 5 stars See all reviews (34 customer reviews)
• Amazon.com Sales Rank: #437,025 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

15 of 15 people found the following review helpful:

4.0 out of 5 stars A One-Burp Book, November 17, 2006

By	Craig L. Howe "The Pointed Pundit" (Darien, CT United States) - See all my reviews (TOP 500 REVIEWER)    (REAL NAME)

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.

45 of 53 people found the following review helpful:

5.0 out of 5 stars Simultaneously lucid yet dense with welcome and instructive detail, February 12, 2006

By	Bachelier "Husband, Father, Catholic, Finance... (Ile de France) - See all my reviews

Move over William Poundstone (author of "Prisoners Dilemma" and "Fortune's Formula"). John Allen Paulos (author of "A Mathematician Plays The Stock Market") can read this book and revise his own flawed works with this insight. Michael Lewis (author of "Liar's Poker") can stop typing now. There is a new king of lucidity concerning the nexus of games and game theory, mathematics, finance, gambling, markets, and the simultaneously brilliant and frail humans who engage and advance our knowledge of them all. His name is Aaron Brown.

Aaron Brown's "The Poker Face of Wall Street" accomplishes the impossible, for it is simultaneously a readable and enjoyable narrative work, yet also dense with mathematical and behavioral finance theory. Nearly every page supplies a lucid thumbnail explication of an economic or behavioral finance concept, backs it up with an appropriate example, often offers an alternative view, and then provides an historical anecdote to expand the concept and make it at once both memorable and familiar. Yet this is not a pedagogic work, but a popular offering for a wide audience of those who are curious or love poker, finance, or both.

Brown's method is to use the game of poker as his narrative spine, upon which he weaves the histories and intersections of finance and gambling, economics and risk, information theory and human behavior. He tells the tale of his own love affair with the game, going to the poker dens of 1970s Los Angeles long before there was a World Poker Tour or the Commerce Casino existed. These modest halls (often operating Veterans of Foreign Wars meeting halls) were an anomaly and a pause in history after the saloons of the wild west were tamed and before the leveraged glamour of Las Vegas lured the core tourist and casual poker player away. My own uncle spent his life in such places as a career poker player who made a modest living at the game, but often working ten and 12 hour days to do so, and with not infrequent setbacks. Yet, these nondescript low rise cinderblock buildings were the birthplace of poker as we know it today, and were where the world famous celebrity players of the hour originally honed their skills for today's high stakes televised games from the well of glamour.

Yet this is not simply a memoir of a poker great also-ran, but a sound examination on the dimensions of why the game is rational and irrational, tractable yet inexplicable, simultaneously transcendent and incarnational. Familiar poker personalities appear here and there, often emerging again in the work as other dimensions of their contribution to the game become more famous. But the work is not concerned with a recounting of great memories of a silent Cowboy facing a taciturn Chinese, both bluffing, and both betting all-in. Rather, it uses poker to point to gambling, gambling to point to math, and math to point to risk, and risk to point to investing, and investing to point to finance, and finance to point to economics, and economics to point to gambling. All concepts explained with examples and personalities.

Brown's elucidation of the gambling economy of the Mississippi delta Native Americans and how effective it was at distributing goods across vast territories in a moneyless society is the first treatment of the topic I have seen outside specialist historical texts, typically only known to Mississippi natives such as myself. The irony of a gambling economy trying to be supercharged by colonial economic presumptions, which were themselves being advanced by famous gambler John Law through his Mississippi Company, is a hilarious accident of history that Brown walks us through with deadpan seriousness. All the while pointing to goods and trade being advanced by gambling.

The short detail above is just one example of the countless dimensions that Brown has managed to weave into this work and provide its density. Well chosen history and anthropology buttress Brown's memories and economic and financial comments, yet in the same breath he points to gambling and poker. One puts this work down with the feeling that finally all previous works you have read concerning probability, finance, gambling, history, psychology, economics and mathematics have been tied together with a clarity never previously experienced or imagined possible. This is an excellent, satisfying work that merits immediate rereading. You will not be disappointed.

15 of 16 people found the following review helpful:

5.0 out of 5 stars Intruiging Book, March 20, 2006

By	T. Reid "book lover" (Los Angeles, CA USA) - See all my reviews (REAL NAME)

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.