I am a fan of Michael Lewis books. They are fun to read, filled with heroes and villains, and even better give insights into what is to me an exotic and foreign land — that of Wall Street and high (matter of perspective) finance. I have just finished his latest book, Flash Boys (information in recommended reading column on the left of the blog). As you can see from the internet, it is already highly controversial, but also presently number one on the New York Times non-fiction best sellers list.
Michael is a very bright and likable person, who has a knack for causing people to tell him things they probably shouldn’t, which is of course a valuable attribute in the vocation he has chosen. I met him years ago when his wife, Tabitha Soren, came to Stanford as a holder of a Knight Journalism Fellowship, awarded to outstanding professional journalists. He was interested in doing a piece on Silicon Valley venture capitalists, we talked a bit, and he asked me to introduce him to some. Easily done, with the result that an excellent article appeared, describing the Silicon Valley venture capital industry very well, but also outing a bit of dirty linen that several members of the VC community did not want to become public. I liked the article, but a couple of the people I told him to look up didn’t return my phone calls for a while.
One thing that impresses me is that he has an incredible knack to convey the nature of the seemingly strange (to me) behavior of people investing large amounts of money in hopes of making huge profits. Among other things, Flash Boys is about the impact that computers have had and are having on the stock market. In brief, computers now handle large movements of money rather than people, and the speed at which they can make decisions and the speed at which buy/sell messages move has become a critical factor in trading, resulting in great emphasis on such things as the length of fiber cables and the speed of digital components. Large buys and sells affect the value of stocks. When stock transactions were completed in seconds, traders were able to follow them. But now first milliseconds and then microseconds are important for a number of reasons. As an example, Computers are fast enough to sense a buy or sale well before it is complete, and use this knowledge to profit by such things as transactions through other exchanges. The age of high frequency trading was the result of this.
Flash Boys is an excellent story about the effects of technology on a traditional business and the interaction between computer specialists and traditional traders and managers. Books like this open my eyes a lot, because my attitude toward money was probably formed by growing up in a small town after the depression. I tend to relax into thinking that it represents something fixed. I certainly do not consider myself an investor, but Michael Lewis books do make me think about the trustworthiness of the money on which I depend on as a retired person. High frequency trading does not affect my meager stock transactions, but it affects the economy, and the economy affects me.
I recommend the book for a number of reasons, not the least being that it will give you another look at the influence of technology when it strikes a traditional business. And if you are not on Wall Street working in finance, it will give you some things to think and worry about.