The Money Game

This is a classic about the stock market and investing. George covers a breadth of topics in that area based on his insider experience. This includes the psychology of the investor ("you"), IT systems and their impact on the investing field, the professional money managers and their role in the Game etc. The concepts are introduced in an accessible, and often humorous style. While the author does not offer direct investing advice, he does expose what he calls "the biases" that exist in the market - that are essential to take into account to be successful together with good judgment. George is very successful at immersing the reader into the culture, the psychology and way of thinking that dominates the financial markets and its participants. While this book is dated, most of the concepts discussed still apply to the financial industry today. A recommended read for anyone looking to gain more insight into the Stock Market. Below are excerpts from the book that I found particularly insightful: 1) "If you are a successful Game player, it can be a fascinating, consuming, totally absorbing experience, in fact it has to be. It 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 absorbing." 2) "The irony is that this is a money game and money is the way we keep score. 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; as long as there is a way to keep score, they will play." 3) "In short, if you really know what's going on, you don't even have to know what's going on to know what's going on." 4) "You must use your emotions in a useful way...Your emotions must support the goal you're after...You must operate without anxiety." 5) "The strongest emotions in the marketplace are greed and fear. In rising markets, you can almost feel the greed tide begin...the greed itch begins when you see stocks move that you don't own." 6) "If you know that the stock doesn't know you own it, you are ahead of the game. You are ahead because you can change your mind and your actions without regard to what you did or thought yesterday." 7) "Who makes the really big money? The inside stockholders of a company do, when the market capitalizes the earnings of that company." 8) "What you want is the company which is about to do that (compounding earnings) over the next couple of years. And to do that, you not only have to know that the company is doing something right, but what it is doing right, and why these earnings are compounding." 9) "What I have told you is a set of biases so you can make your own judgement." 10) "It is an informal thesis of charting that there are roughly four stages of stock movement. These four are: 1) Accumulation: To make a perfect case, let us say the stock has been asleep for a long time, inactively trade. Then the volume picks up and probably so does the price. 2) Mark-up...Now the supply may be a bit thinner, and the stock is more pursued by buyers, so it moves up more steeply. 3) Distribution. The Smart People who bought the stock early are busy selling it to the Dumb People who are buying it late, and the result is more or less a standoff, depending on whose enthusiasm is greater. 4) Panic Liquidation. Everybody gets the hell out, Smart People, Dumb People, "everybody." Since there is "no one" left to buy, the stock goes down." 11) "Does this mean that charts can be ignored? Perhaps charts can be a useful tool even without inherent predictive qualities. A chart can give you an instant portrait of the character of a stock, whether it follows a minuet, a waltz, a twist, or the latest rock gyration. The chart can also sometimes tell you whether the character of the dancer seems to have changed." 12) "The computer is going to sanctify charting. The Chartists are on their way." 13) "The characteristics of performance are concentration and turnover. By concentration, as I said before, I mean limiting the number of issues. Limiting the number of issues means that attention is focused sharply on them, and the ones that do not perform well virtually beg to be dropped off...Furthermore, you are going to be scouting for the best six ideas, because if you find a really good one it may bump one of your other ones off the list. Turnover means how long you hold the stocks...All that turover has doubled the volume in the last couple of years, and the brokers are getting very rich." 14) "The further we come along, the more apparent becomes the wisdom of the Master in describing the market as a game of musical chairs. The most brilliant and perceptive analysis you can do may sit there until someone else believes it too, for the object of the game is not to own some stock, like a faithful dog, which you have chosen, but to get to the piece of paper ahead of the crowd. Value is not only inherent in the stock, it has to be value that is appreciated by others...It follows that some sort of sense timing is necessary, and you either develop it, or you don't." 15) "The aspiration of the people are a noble thing and no one is against jobs. But it does seem easy to produce them with currency rather than productivity. Central governments soon learn the utility of a deficit. It is convenient to take the views of the economists who followed Keynes and spend money during recessions. There are even problems on that side of the equation, because even with the breadth of statistical reporting and with computer, speed, this kind of economics is still inexact, and the central government can find itself pressing the wrong lever at the wrong time." 16) "The love of money as a possession - as distinguished from love of money as a means to the enjoyments and realities of life - will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease."

Every generation, a writer and their books pop up that show the back end of Wall Street and its ilk running back to Bagehot’s “Lombard Street”. There was then Livermore’s Reminiscences of a Stock Operator, and Schwed’s “Where Are the Customers' Yachts?” The generation before me had Michael Lewis and his “Liar’s Poker.” You may say that he is contemporary, since he is still writing, but that book made his name, and he hasn’t worked on the street since. He’s more of an outsider now – in fact, “Liar’s Poker” just got a rerelease for its 25th anniversary. Our generation lacks our defining book. The writers who might have written those books are still grappling with the legacy of the 2008 financial crisis. But I digress. Then if Lewis was for our fathers, the Adam Smith was for our grandfathers. It is an interesting read in the more things change, the more they stay the same sort of way. Some of the references are dated, but others are remarkably contemporary. One example is traders talking about the income potential of shale gas out west to produce once technology comes on line. There is a joke that they have always been waiting for technology to extract the oil, at least since the thirties. You know what the new technology was that was so promising 50 years ago? Drillers were going to plant small nuclear devices down wells to make them produce. It makes the current fracking debate seem quaint – oh, what’s a little flammable hydrocarbon in your water matter? It could have been much worse. That’s just a tiny part of the book. There’s also some good advice built in. For example, I flagged “If you know the stock doesn’t know you own it, then your ahead of the game” (72), which is evergreen advice against getting stuck in the sunk cost fallacy. There’s also worries that computers will take over and the value of the dollar will go down – which also seems familiar. Overall, this book is well worth a read for someone who is interested in the history of the market or even someone looking for advice in today’s market.

If you’re wondering why “Adam Smith” is in quotations, it’s because the name is the pseudonym adopted by the author who wrote The Money Game, a 1967 market classic. In the author’s own words, the book is about “image and reality and identity and anxiety and money” — everything that makes up markets… Here’s some of “Smith’s” teachings: "You and I know, that one day the orchestra will stop playing and the wind will rattle through the broken window panes… We are all at a wonderful party, and by the rules of the game we know that at some point in time the Black Horsemen will burst through the great terrace doors to cut down the revelers; those who leave early may be saved, but the music and wines are so seductive that we do not want to leave, but we do ask, ‘What time is it? what time is it?’ Only none of the clocks have any hands." Successful trading is a game of gauging sentiment in order to discern timing; all while trying to stand apart from the crowd (no easy feat). The irony is that the “Black Horsemen” tends to burst through the door the moment party revelers finally stop asking “what time is it?” "‘The market,’ says Mister Johnson, ‘is like a beautiful woman — endlessly fascinating, endlessly complex, always changing, always mystifying. I have been absorbed and immersed since 1924 and I know this is no science. It is an art. Now we have computers and all sorts of statistics, but the market is still the same and understanding the market is still no easier. It is personal intuition, sensing the patterns of behavior. There is always something unknown, undiscerned.’" Investors today are even more awashed in statistics and data, or what we at Macro Ops call “noise”. The game of speculation will always stay the same because it’s always changing. "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." These are true words… I’m endlessly amused by the droves of traders who spend an hour or two of half-hearted study in the markets each week and expect to produce alpha. If you want to win in this game, you have to go all-in on learning and constant evolution. This takes an extreme level of dedication. There’s no half-assing long-term survival here. "What is it the good managers have? It’s a kind of locked-in concentration, an intuition, a feel, nothing that can be schooled. The first thing you have to know is yourself. A man who knows himself can step outside himself and watch his own reactions like an observer." “The first thing you have to know is yourself.” This is paramount. The greatest traders all possess an unusually high level of self-awareness. The road to trading mastery is as much a journey in self-discovery, as it is one in producing high risk-adjusted returns. "If you are not automatically applying a mechanical formula, then you are operating in this area of intuition, and if you are going to operate with unition — or judgement — then it follows that the first thing you have to know is yourself. You are — face it — a bunch of emotions, prejudices, and twitches, and this is all very well as long as you know it. Successful speculators do not necessarily have a complete portrait of themselves, warts and all, in their own minds, but they do have the ability to stop abruptly when their own intuition and what is happening Out There are suddenly out of kilter. A couple of mistakes crop up, and they say, simply, “This is not my kind of market,” or “I don’t know what the hell’s going on, do you? And return to established lines of defense. A series of market decisions does add up, believe it or not, to a kind of personality portrait. It is, in one small way a method of finding out who you are, but it can be very expensive. That is one of the cryptograms which are my own, and this is the first irregular rule: If you don’t know who you are, this is an expensive place to find out." In my years in the markets I have found that there’s been a strong correlation between my trading performance and my mental state outside of markets. When things are out of kilter in other parts of my life, my trading will usually reflect it. It’s important to maintain balance and reduce or step away from trading when you’re in a poor mental state. "The first thing we know, says good Dr. Le Bon, is that an individual in a crowd acquires — just from being in a crowd — “a sentiment of invincible power which allows him to yield to instincts which, had he been alone, he would preferred to keep under restraint… the sentiment of responsibility which always controls individuals disappears entirely.”" It’s just plain human nature to give in to herd instincts and get caught up in irrational exuberance. The market serves as a perfect window into this phenomenon. You have to always try and separate yourself from the thinking of the crowd. Like Mark Twain said, “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” "There is one other rule you ought to keep in mind, and that is to concentrate, and not only in the Zen sense. Sweet are the uses of diversity, but only if you want to end up in the middle of an average. By concentrate I mean in a few issues only. There are, at any one moment, only a few stocks that have a maximum potential, and I, for one, am not smart enough to be able to to follow more than a handful of stocks at a time. " Conventional wisdom on diversification is plain stupid. If you’re trying to beat the market, then you’re going to have to play the game a bit differently. It’s much easier to pick and hold a handful of really good assets than to manage a hundred of them. Like Druckenmiller, you actually want to have all your “eggs in one basket, and watch the basket very carefully”. "A stock is, for all practical purposes, a piece of paper that sits in a bank vault. Most likely you will never see it. It may or may not have an Intrinsic Value; what it is worth on any given day depends on the confluence of buyers and sellers that day. The most important thing to realize is simplistic: The stock doesn’t know you own it. All those marvelous things, or those terrible things, that you feel about a stock, or a list of stocks, or an amount of money represented by a list of stocks, all of these things are unreciprocated by the stock or the group of stocks. You can be in love if you want to, but that piece of paper doesn’t love you, and unreciprocated love can turn into masochism, narcissism, or, even worse, market losses and unreciprocated hate." Know this, internalize it, and never forget it. "Personal intuition does not mean that you can translate last night’s exotic dream into some brilliant choice in the market. Professional money managers often seem to make up their minds in a split second, but what pushes them over the line of decision is usually an incremental bit of information, which, added to all the slumbering pieces of information filed in their minds, suddenly makes the picture whole." Soros would argue for hours with someone on why he was bullish on a particular thing, only to completely reverse his position and be a raging bear the following day — usually due to a single new piece of information that caused one of his “backaches”. Mental flexibility is key. Strong opinions weakly held. Never become wedded to an idea; remain fluid like water and open to that new piece of information that “makes the picture whole.” The Money Game is timeless market wisdom. Learn it, live it, and you won’t end up like “John Jerk”. John Jerk is from an article titled “The Day They Red-Dogged Motorola,” written by Adam Smith, where Mr. Jerk is the typical individual investor. Here’s more on John: "In more polite circles, John Jerk and his brother are called “the little fellows” or “the odd-lotters” or “the small investors.” I wish I knew Mr. Jerk and his brother. They live in some place called the Hinterlands, and everything they do is wrong. They buy when the smart people sell, they sell when the smart people buy, and they panic at exactly the wrong time. There are services that make a very good living out of charting the activity of Mr. J. and his poor brother. If I knew them I would give them room and board and consult them…. I would push the pheasant and champagne through the little hatch of his cell and ask Mr. J. what he was going to do that morning, and if he said, “buy,” I would know to sell, and so on." Don’t be a “John Jerk”...

"Adam Smith" wrote this book in the 1960s when men were men and he could unashamedly compare stock markets to women. The book is full of contemporary references that are so dated that Wikipedia has trouble with them. Anyone remember Franz Pick, Brunswick, the Gnomes of Zurich, the advertising slogan of E. F. Hutton? (Okay, I remember all these, but only hazily). With the advent of discount brokers, many of the stories about broker-customer relationships have been irrelevant for decades. Also, not one word about the man who came out of this era with the best record: Warren Buffett. Sometimes it's hard to recognize historically important people while they are making history. More than that, though, Buffett's style and performance don't fit Smith's viewpoint. Between the two, I'll go with Buffett. On the plus side, Smith points out that markets are full of people, and people often have other interests besides maximizing utility. Many of the stories in this book prefigure the development of behavioral finance. And it's one thing to read about the Nifty Fifty in a history book; it's another much better thing to read a contemporary account. If you already know the history of US markets back to the 1960s (and preferably back to the 1900s), this book will fill in lots of color. If you don't, then it will be hard to separate Smith's dramatic embellishments from actual history. It's a bit like watching "Mad Men" without ever reading Ogilvy.

Putting your money in the stock market: is it a gamble, or is it an investment? Is the stock market influenced by the crowd mentality? Charts and graphs, computers, and market analysts—do they really make a difference? Systems—are there any that really work? Who really makes the big money? What is money, anyway? Do you really want to be rich? These are the many questions addressed in this pithy, witty, wise, and funny book on the stock market, written by one who’s been through the Wall Street wringer and kept his sanity to tell us about it. Written under the alias of Adam Smith, his real name is George J.W. Goodman, who is Harvard and Oxford educated. Published in 1967, not much has changed since then; the same rules still apply. The Wall Street Journal recently included “The Money Game” among the 15 best books on Wall Street investing that have stood the test of time. Caution: if you’re looking for some insight into making money on the Street, “The Money Game” is probably not for you. One of the main points of the book, which the author returns to again and again, is that the stock market is a game. Those who make lots money see it as such, where the real object is not to make money but to play the game. They are the precious few investors who see money not as an end but as a means of keeping score. Smith cites cases where investors who made a killing on the Street retired early only to become bored with their yachts and their Ferraris and their endless afternoons on the golf course. They missed the action. What did they do? Return to Wall Street to take up the game once again. Can smart investing be taught? No. It’s a kind of locked-in concentration, an intuition, a feel for what’s going on. Either you have it or you don’t. Even the best investors start out by making mistakes, and learning from them. Says one very successful investor: “When I look back, my life seems to be an endless chain of mistakes.” The market is ruled by greed and fear, and possesses a herd mentality. After all, what’s more galling than to see someone making money when you’re not. What do they know you don’t? Probably not much, says the author, and very likely will lose the money they made. He cautions never to follow the crowd. The crowd is “excessively emotional, impulsive, inconsistent, irresolute and extreme in action, incapable of any but the simpler and imperfect form of reasoning, like an unruly child.” If you must invest, do your homework. There is no substitute for information. The market is not a roulette wheel. Good research and good ideas are the one absolute necessity in the marketplace. And know yourself. Be able to step away and observe your actions with disinterest. The Street is an expensive place to learn who your are. And what of money with all its allure? Money is “condensed wealth; condensed wealth is condensed guilt. But guilt is essentially unclean.” People who became rich often try to ease their guilt by making large donations to charities. The apparent accumulation of wealth “is really impoverishment of human nature,” says Smith. At the end of the book, the author questions whether or not the money game is really worth the effort, whether making money on the street is all that’s cracked up to be. The author quotes famed economist John Maynard Keynes that the day will come when avarice and usury are no longer our gods, when mere wealth will no longer be of social import, morals will change, and “we shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some the of the most distasteful of human qualities into the position of the highest values. . . .” When that day will come Keynes doesn't say. “The Money Game” is a sort of old-fashioned morality tale, about the pitfalls and evils of making money, where all but a few accumulate anything like real wealth. And of what purpose for those who do? To be merely rich? Is that what life is about it? What about the enjoyment of art, a good book, a walk in the park, being with family, serenity itself? As I said above, if you’re looking for an angle to making money, this book is not for you. But if you’re looking for a good yarn, a bit of wisdom, and humor, you’ll enjoy this book very much. Quoting the Wall Street Journal article: “Reading this mockery can help sharpen your own skepticism toward the next new investment idea—which almost certainly will turn out to be neither great nor new.” Final note: The book is divided into five sections: (I) You: Identity, Anxiety, Money; (II) Systems; (III) They: The Pros; (IV) Visions of the Apocalypse; and (V) Visions of the Millennium.

As a long time investor, old enough to remember the market, society and events taking place at the time this book was first written, I can relate to impact it was originally meant to have. It is witty and clever and skillfully keeps the reader engaged. The author's premise that participating in the investment world for the aficionado is a game, win or lose, rings true with my observations. (Note: I was introduced to the market at age 6 by my father who was a long time investor. I later became a registered investment professional for time.) The mechanics of the market have changed due internet, direct access to trading and account management, crypto currencies, etc., but the types of investors, motives, personality traits and approaches to the market remain much the same as described herein. I thoroughly enjoyed this book and recommend it to those finding their way into the investment world or veterans of the game desiring a fresh perspective.

I had read a couple other of "Adam Smith's" books, including "Powers of the Mind," and thought that I hadn't read this one, which is about investment bankers and the stock market and the early uses of computers in wheeling and dealing. Throughout the book I kept feeling, "I've read this before," and then would come to something I didn't remember at all. A good read, though, and I'm glad I bought it. One story is about the change from silver coins to the modern "clad" coins when the price of silver rose in the 1970s. He bought a few ounces of silver and his attempts to sell it are still funny. Then there's the story of "Poor Grenville," who was stuck with $92 Million he needed to invest before the end of the month and how all his friends on The Street tried to help him find an investment that he wouldn't be criticized for. Since I lived through those days I enjoyed this.

"The Money Game" was a game changer for me. It helped me get my first job in the investment industry in 1979, and it has helped me to see my way through financial crises ever since. I first read "The Money Game" just before going to an interview for my first job in funds management. I got the job. Since then, I've re-read "The Money Game" several times, mostly during financial crises such as the 1987 stock market crash, the 1997 Asian economic crisis, the Internet bubble and again during the recent subprime mortgage debacle and European financial crisis. There are many insightful and quotable lines in this book. One of my favourite quotes is: "The identity of the investor and the investment decision must be coldly separate .... for the market has a way of inducing humility in even its most successful students ... you have to be able to step outside yourself and see yourself objectively." "The Money Game" is not a book about stock selection techniques, though the writer gives a witty overview of the main approaches. It is a book about market psychology. Reading "The Money Game" helps you cultivate the right mental attitudes to be a good investor. Written during the 1960s the humour is not always correct by today's standards. However, it is insightful, witty and fun to read.

This book reminds of Business Adventures by John Brooks. In some ways, the stories in this book are slightly different or offer a savant viewpoint on the irrationality of financial markets. It is very well written and engaging. Thankfully, Amazon had this book in stock and well priced ...

Praticamente sconosciuto in Italia ma fenomenale. Un concetto per cui vale la pena di leggerlo: " No, non si fanno i soldi sui mercati finanziari,i soldi si fanno quando un mercato riconosce la tua idea come valida, non c'e' modo di arricchirsi veramente senza creare valore." Dice la verita' sui mercati finanziari, da comprare cartaceo. L'impaginazione fa schifo

Claro y consiso un clásico

Very poor quality, print too small and dense. Very expensive. The book does not do justice to the content or the author.

Whilst it might not be a typical investment book, which tend to be 'here's how investing works and how you will make money', which typically disappoint. This book focuses more on the philosophy side of money and investing, with plenty of information you likely won't read anywhere else. It's well written, not difficult to understand, though the references and some words might not be common language these days, a quick Google every now and again helped. It's one of those books where, if you're serious about investing, you really ought to read it. I learnt about this book from Howard Marks referencing it in one of his memos, and I'll likely make an effort to read it every few years.