Book Review: Nerds on Wall Street

Book Review: Nerds on Wall Street

I may not be the most active blogger in the world anymore, but I figured it was worth posting my book reviews of my 2014 reading list (what with it being a New Year’s Resolution and all).  Unfortunately, it’s February 5th and I’m only writing the review of my first book.  Hopefully I don’t lose interest as quickly in the rest as I did with Nerds on Wall Street by David Leinweber.

The book is described from the beginning as a collection of articles and speeches related to the authors experience as one of the true pioneers of algorithmic trading.  Unfortunately, it reads exactly that way.  There is very little that brings it together in to a book, but there are a lot of great little anecdotes and stories.  The book is broken in to four parts and they range from fascinating to worthless.

  • Part 1 – Wired Markets is worth the price of the book and is a fascinating read on the history of markets in general and specifically outsmarting them with technology.  It includes some stories you’ve heard and some you haven’t from the 17th century traders who created arbitrage opportunities by using carrier pigeons to compare security prices on two different exchanges to the current banks that co-locate their algorithmic trading engines at the exchange to achieve micro-second latency.  If you’re new to Wall Street, IT, or both I highly recommend reading the first part of the book.
  • Part 2 – Alpha as Life is a compelling look at what makes the yachts parked on the Hudson so big.  Leinweber explains the concept of Alpha (the difference between your returns and expected returns) and then explains how funds are set up to achieve it.  First in how they diversify to cover the entire market and then in how they make targeted bets.  Finally he shows some of the ways (from the good to the humorously bad) that people identify those bets.  If you’re a non-Wall Street nerd looking to understand the Wall Street types better, this section could be interesting.
  • Part 3 – Artificial Intelligence and Intelligence Amplification goes in to some of the ways that the author has put together to analyze the market.  They are far too detailed and far too niche to be interesting.  The section isn’t without its good anecdotes, but I’d skip it.
  • Part 4 – Nerds Gone Wild – Wired Markets in Distress is an afterthought.  It’s pretty clear that the author wouldn’t have written them if the publisher hadn’t forced him to cover the topic of the, then recent, financial crisis of 2008.  Following a mildly entertaining discussion of market manipulation and over complicated derivatives, he lazily borrows some thoughts from egg heads on how to avoid a  future crisis (neither very compelling), and actually writes a chapter on what nerds on wall street who lost their jobs in 2008 might want to study (the environment).  If I wanted wining about derivatives, a career guide, or a discussion of how great environmental tech can be I would have bought different books.  I highly recommend you finish your reading of the book after Part 2 (or Part 3 if you insist).
The Bottom Line: Buy it for the first two parts.