Red-Blooded Risk: The Secret History of Wall Street

Paths

Most of the rocket scientists on Wall Street in the 1980s went down one of these two paths, just as most of the quant gamblers I knew in the 1970s split into card counters or sports bettors. The frequentists who believed in market equilibrium formed small hedge funds, often single-manager funds. They shunned publicity and courted investors only to the minimum extent necessary to get started. They refused more investors than they accepted. As soon as possible they limited the outside investors to those who had proven long-term loyalty, or even converted to investing only their own and employees' money. They were intensely secretive, sharing information only with like-minded investors. Whatever information they needed for executing their strategies they got from documents and direct observation; they hated depending on people and reflexively bet against opinions—even their own untutored beliefs. They were happiest buying when their intuition said to sell.

The degree-of-belief probabilists who believe in market efficiency found comfortable homes in investment bank trading desks. If they formed hedge funds, they were big ones that catered to outside investors. Like the sports bettors, they wanted to work in or to run a business, not to make money as independent bettors. They were open about their approaches, which is necessary in big institutions and also necessary to raise large amounts of money. They relied on personal information networks to run strategies.

Sports-bettor types ...