Secret Decoder
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So I needed to start investing in my own account.
I didn’t really know what I was doing, but I thought that I should. After all, I came to Wall Street to learn the truth about capitalism. But the truth about capitalism isn’t exactly posted on the interior walls of investment banks. Nor is it all written down in some pamphlet handed out to new hires.
Most of my time at work was spent solving very technical problems. What I would call plumbing problems. I was not hired to decode the secrets of money or stock prices or anything like that. I WAS decoding some secrets of the .Net framework, and the Windows XP desktop environment. After work I was 26 and living in NYC with my girlfriend. I didn’t find much time to study.
But I began digging into some books about investing and trading and finance culture in general, trying to make some sense out of my new world. But they only made me more confused. The world according to books on how to trade was totally at odds with the realities of the desk that I was learning about. Those realities were also at odds with everything I had learned about investing from Grandpa.
For one thing, you couldn’t pick stocks anymore. Picking stocks by trying to predict how the underlying business would perform simply didn’t work like it used to. That was because all of the information was public and it was silly to think that you could pick up on anything that had been missed by analysts and investors, especially hedge funds. Owning the right stock at the right time was a game for suckers.
But you could win, it was believed, by holding the right “asset allocation” at the right time. The new game was about creating diversified exposure to various sectors and asset classes by finding the proper “weights” for each component of the portfolio. For example, the words “buy” and “sell” were replaced, in analyst speak, with “underweight” and “overweight.”
The analyst wasn’t predicting that the stock price would increase, or even recommending that you buy it. He was stating a belief that the stock could be beneficial to certain portfolios in greater quantities than currently suggested by its market value. But the benefits might not be price increases. They could be in the form of diversification and risk-reduction for example.
If this new investing game seems like less fun than the old one then you aren’t alone. It was partially an attempt to project less of a casino-like atmosphere; one where “dealers” push buy and sell recommendations on their customers. Now we were there to help our clients manage risk and realize optimal portfolio implementations.
But it wasn’t just about seeming more professional or scientific or whatever it was.* It was also an attempt to appeal to a new audience of professional money managers; quants.
*Oh, now I remember, the word is “engineering.” They were trying to sound like engineers!
