The Money Game by Adam Smith

Author:Adam Smith
Language: eng
Format: mobi, epub
ISBN: 9781497652712
Publisher: Open Road Media
Published: 2015-05-25T14:00:00+00:00

As you would expect from my own confession of bias, I find it hard not to agree with the dean of analysts. I suspect that even if the random walkers announced a perfect mathematic proof of randomness, I would go on believing that in the long run future earnings influence present value, and that in the short run the dominant factor is the elusive Australopithecus, the temper of the crowd.

CAN INTUITION BE PROGRAMED?

In 1881 G. W. Carleton & Company published How to Win in Wall Street by a Successful Operator. The Successful Operator’s adventures in the Erie and in streetcar companies need not concern us. There is the ring of authenticity about Successful Operator’s story, but Successful as he was, Operator was far outdone by the great trader Keane. After he spent some time watching the great Keane in his brilliant maneuvers, Successful Operator approached Keane and asked if he had any rules about buying or selling. “Sir,” said the great Keane, “I do not. I buy or sell much as a woman would, by intuition.”

Intuition is still with us, even though it cannot be programed into a computer. Almost everything else can be programed, and my friend Albert the chartmeister is one of the leading computer handlers. Albert had never heard of a random walk until I told him about it, so you see a computer can be used on both sides.

Albert called me one day, excited as a nine-year-old boy who has just been given a 320 cc Black Madonna Beauty Queen cycle, just like the Hell’s Angels ride. “Come and see the new computer,” he said.

Albert is what the downtown folks call a Technician. Technicians believe the only thing you have to know about the market is supply and demand; never mind earnings, dividends, business outlook—that is all for the Fundamentalists. Supply and demand show up in price and volume and other statistics which the Technicians marshal onto pieces of paper, the charts. Just as the natural enemy of the baboon is the leopard, the Technicians have a natural enemy—not the Fundamentalists, who can always be tolerated, but the Anti-Technicians, the random walkers we have just met. But as you know, no random-walk theoretician has managed to write a complete paper in English yet, and most Wall Streeters cannot read those little Greek symbols lying on their sides inside the square-root symbols.

Anyway, Albert was so excited that I zipped over to see the new computer. Albert works for an Institution, a large fund of hungry money. When Albert first went to work there, he sat in a little cubbyhole drawing his charts and nobody paid much attention. I knew the Institution was paying more attention to Albert when they gave him a whole room. The Policy People who make the dignified noises at the top of the Institution still pay little attention to Albert, but now Albert’s War Room, as it is called, is becoming a popular place for the salesmen and the analysts to drop in with their mid-morning coffee.

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