This morning we had breakfast with my friend and neighbor Richard Bookstaber on the back deck of his house in the Hamptons. It is on the water and the views were incredible, as was the food.
Bookstaber is the author of the recently released A Demon of Our Own Design.
It’s a finance book. It’s about how markets react, and it is catching a lot of buzz in the financial world.
And this is not esoterica. At last look, the book was rather remarkably (considering the subject matter) ranked 106 on the Amazon list.
Bookstaber is not a media guy. He is not a TV guy. He is not a journalist, (although this is his third book). He is a Wall Street Guy. A real Wall Street Guy.
Here’s his bio:
Richard Bookstaber, PhD (New York, NY) runs a hedge fund at FrontPoint Partners. Prior to this, he was Director of Risk Management at Moore Capital Management, one of the largest hedge funds in the world, and also served in that role at Ziff Brothers Investments. He served as Managing Director in charge of firm-wide risk management at Salomon Brothers and also served on that firm’s powerful Risk Management Committee. Mr. Bookstaber spent 10 years at Morgan Stanley in quantitative research and as a proprietary trader, concluding his tenure there as Morgan Stanley’s first market risk manager. He is the author of three books and scores of articles on finance topics ranging from options theory to risk management. Bookstaber received a PhD in economics from MIT.
Like I said, he is not a ‘tv guy’ or a ‘news guy’.
Which is what made the breakfast all the more interesting.
Bookstaber has spent his life (and made a ton), by taking a cold look at market trends and making predictions.
Here’s a small write up on the book:
Why do markets keep crashing and why are financial crises greater than ever before? As the risk manager to some of the leading firms on Wall Street–from Morgan Stanley to Salomon and Citigroup–and a member of some of the world’s largest hedge funds, from Moore Capital to Ziff Brothers and FrontPoint Partners, Rick Bookstaber has seen the ghost inside the machine and vividly shows us a world that is even riskier than we think. The very things done to make markets safer, have, in fact, created a world that is far more dangerous. From the 1987 crash to Citigroup closing the Salomon Arb unit, from staggering losses at UBS to the demise of Long-Term Capital Management, Bookstaber gives readers a front row seat to the management decisions made by some of the most powerful financial figures in the world that led to catastrophe, and describes the impact of his own activities on markets and market crashes. Much of the innovation of the last 30 years has wreaked havoc on the markets and cost trillions of dollars.
Why am I writing about this? Why was I so captured by this morning’s conversation?
Successful people on Wall Street make billions (literally) because they are able to look at trends and events and see them dispassionately for what they are. There is no emotion in their conclusions. When they are good, they guess right – cause and effect.
Bookstaber is in favor these days because most recently he predicted the collapse of the sub-prime market and the residual impact around the world. Apparently this is not over yet. But he saw it coming a long time ago.
George Soros was famous for his ability to perceive impacts from world events. When Chernobyl exploded, Soros immediately bought potato futures, understanding that the radioactivity would wipe out most of Russia’s potato crop. He was right.
In our own business we have a strong disinclination to making the same kinds of cold decisions based on the empirical evidence before us.
The explosion of demand for video content – cable, satellite and web and the consequent fractionalization of the audience are going to radically change the video business. Compound this with cheap cameras and edits in many hands and you have the makings of a whole new business model.
This is going to happen.
It is absolutely inevitable.
Those who understand it will profit enormously from the shift that is going to come. Those who resist will be caught up in the undertow.
We are not Wall Street Guys.. but every once in a while we could learn a thing or two from them.