Got Game?

WALL STREET SMARTS, THE BLOG, IS NOW WALL STREET SMARTS, THE BOOK.  FULLY EDITED AND REVISED WITH NEW MATERIAL ON AMAZON

What are the traits of an investor or a trader of securities?  What type of person devotes his or her time to this activity?  What is the attraction?  

Jesse Livermore's description of his trading philosophy bears repeating: "Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass." *   In a previous blog, we looked at comments from Professors Malkiel and Keynes about the "game" nature of investing.  Financial writer George J.W. Goodman adopted the pseudonym Adam Smith when he wrote The Money Game in 1967.  Although we have seen it before, his description of the "game" aspects of Wall Street should also be repeated:

Game?  Game? Why did the Master (speaking of Keynes) say Game?  He could have said business or profession or occupation or what have you.  What is a Game?  It is "sport, play, frolic, or fun"; "a scheme or art employed in the pursuit of an object  or purpose"; "a contest, conducted according to set rules, for amusement or recreation or winning a stake."  Does that sound like Owning a Share of American Industry?  Participating in the Long-Term Growth of the American Economy?  No, but it sounds like the stock market.

Smith went on to briefly describe game theory, the mathematical study of actions in a multiple option conflict system (what Smith called the Game), which was developed by John von Neumann and Oskar Morgenstern and published in 1944 in their seminal work, A Theory of Games and Economic Behavior.  He then returned to his characterization of the market's denizens as follows:

I bring this up only because I think the market is both a game and a Game, i.e., both sport, frolic, fun, and play, and a subject for continuously measurable options.  If it is a game, then we can relieve ourselves of some of the heavy and possibly crippling emotions that individuals carry into investing, because in a game the winning of the stake is clearly defined.

If you are a player in the Game, or are thinking of becoming one, there is one irony of which you should be aware.  The object of the game is to make money, hopefully a lot of it.  All the players in the Game are getting rapidly more professional; the amount of sheer information poured out on what is going on has become almost too much to absorb.  The true professionals in the Game - the professional portfolio managers - grow more skilled all the time.  They are human and they make mistakes, but if you have your money managed by a truly alert mutual fund or even by one of the better banks, you will have a better job done for you than probably at any time in the past.

But if you have your money managed for you, then you are not really interested, or at least the Game element - with that propensity to be paid for - does not attract you. I have known a lot of investors who came to the market to make money, and they told themselves that what they wanted was the money: security, a trip around the world, a new sloop, a country estate, an art collection, a Caribbean house for cold winters.  And they succeeded.  So they sat on the dock of the Caribbean house, chatting with their art dealers and gazing fondly at the new sloop, and after a while it was a bit flat.  Something was missing.  If you are a successful Game player, it can be a fascinating, consuming, totally absorbing experience, in fact it has to be.  If it is not totally absorbing, you are not likely to be among the most successful, because you are competing with those who do find it so absorbing.

But the real object of the Game is not money, it is the playing of the Game itself.  For the true players, you could take all the trophies away and substitute plastic beads or whale's teeth, so long as there is a way to keep score, they will play. **

Bradbury K. Thurlow, in his classic 1981 work, Rediscovering the Wheel: Contrary Thinking & Investment Strategy, also discussed the "game" nature of investing.  He wrote about the types of people speculating on Wall Street as follows:

The most obvious division will be between amateurs and professionals.  The former will divide broadly between those who invest / speculate seriously and those who do so primarily because they enjoy the game.  Like all qualitative divisions, this will be difficult to do with accuracy.  The game of speculation, like other competitive sports, gets into one's blood, and one can be wholly and passionately involved in it even as a full-time professional.  Moreover one can play the game with varying degrees of skill.***

Millions of people all over the world own securities, both equities and debt instruments.  Many do this passively by putting their money into mutual funds to be actively invested by professionals.  Someone who is only interested in making money may choose to have the investing done for them.  The individual who is willing to spend the time and effort to pick his or her own investments, in addition to wanting to make money, is also drawn to the lure of the Game being played on stock exchanges around the world.  From what we have seen, for such an individual it is about more than just the money.  The question you must ask yourself is which sort of investor you are.

We will begin our look at the Random Walk theory (the technical name is Efficient Market Hypothesis) in the next blog.

* Excerpt from Reminiscences of a Stock Operator, Edwin Lefevre, © 1923, republished by John Wiley & Sons, Inc. in the Wiley Investment Classics series

** Excerpts from The Money Game by Adam Smith, copyright © 1967, 1968 by Adam Smith are used by permission of Random House, Inc.

*** Excerpt from Rediscovering the Wheel: Contrary Thinking & Investment Strategy, Bradbury K. Thurlow, ©1981, published by Fraser Publishing Company, is used by permission of the current copyright holder.

Comments are always welcome.