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The Wrong Answer Faster

The Wrong Answer Faster The Inside Story of Making the Machine that Trades Trillions

Author: Michael Goodkin
Publisher: John Wiley & Sons
ISBN: 9781118133408
Published In: February 2012
Format: Hardback , 326 pages
Jurisdiction: International ? Disclaimer:
Countri(es) stated herein are used as reference only

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The fascinating story behind the machines that trade trillions of dollars every day

“A Bildungsroman, one jacket blurb calls this book—and sure, it’s a traditional coming-of-age tale. But the story itself is anything but conventional. The pleasures of the book lie in the story of their bumpy path to success.” Canadian Business

In 1968, Michael Goodkin is about to graduate from Columbia University. While his classmates interview for jobs, he daydreams of seeing the world as a man of independent means. Noticing that there are no computers on Wall Street and drawing on his experiences as a failed teenage investor and successful gambler, he has an epiphany: since no one knows the right price for anything, the only way to beat the market is to make a computer that comes up with the wrong answer faster than the professionals.

And thus begins a journey that takes this provincial Midwesterner from nearly broke to opulent Park Avenue. The Wrong Answer Faster is the story of unintended consequences: how a technique originally created to minimize market risk spiraled into a multi-trillion dollar game with unparalleled risks.

Having founded and sold a firm that changed the world, Goodkin left New York to travel and play backgammon—only to return to found another groundbreaking firm, Numerix, a software company that substituted computational physics for econometrics to better manage derivative risk.

The story of the computerization of Wall Street by the man at the helm
Packed with keen insights, based almost entirely on poker, backgammon and game theory
Goodkin's unique insight to the markets is that everyone has the wrong answers
The solution is not to try to beat the market but to come up with the wrong answers faster

The epic tale of the untold story how one man with a great idea decided not to play the market but to revolutionize the financial world for generations to come by creating the most ground breaking tool for market players since the ticker tape.

Prologue 1

Chapter 1 High School Hustler 9

Older Doesn’t Mean Smarter, and Bigger Doesn’t Mean Better 10

My First Bank Account 15

Working in the Off-Season 16

The Bill Collector 20

Sundays on Maxwell Street 24

Birth of a Banker 26

Graduation Day 31

Chapter 2 The Late Bloomer 35

Harvard on the Rocks 39

Home for the Holidays 41

The Rat Practical 43

Developing a New Perspective 45

Politics Is Politics 50

Moving to the Downstate Campus 54

Leaving on a Jet Plane 58

Chapter 3 Leading a Double Life 75

In the Mayor’s Office 79

The Best of the Worst 82

Preparing for the Worst 86

Becoming a New Yorker 89

Chapter 4 A Big Idea 91

Still Daydreaming after All These Years 95

The Wrong Answer Faster 97

Mispriced Merchandise 100

Chapter 5 Chasing Venture Capital 109

Shelly Likes the Horse 112

The Problem Is with the Jockey 120

Shelly Takes a Flyer 121

The Guy without the Money 123

Negotiating My Terms 125

Chapter 6 Banking the Venture Capital 127

A Phone with a View 128

Recruiting Shelton 132

Meeting an Investor 141

Quitting Time 143

Hiring Lawyers and Accountants 145

Money by a Nose 147

Miles to Go 153

Chapter 7 Stepping Out in the World 157

Recruiting the Brain Trust 163

I Can’t Even Give It Away 172

Worth More Dead than Alive 174

Chapter 8 Making the Impossible 177

One Door Closes and Another Door Opens 178

Turning Luck into a Craft 182

Changing Jockeys in Midstream 185

Conducting a Symphony Orchestra 186

Person-to-Person Call for Dr. Shelton 187

Turning on the Lights 189

Targeting the Wrong Market 191

Chapter 9 If I Were a Rich Man 195

Rich People Play Backgammon 201

Entering a Parallel Universe 203

The New York Circuit 204

Stretching Rubber Bands 206

The King and I 208

Looking in All the Wrong Places 211

Fishing in Seattle 217

The Best Execution in the Business 220

Chapter 10 Too Good to Be True 223

Snagging an Invitation to London 225

An American Capitalist in Sir Sigmund’s Court 229

The Swiss Connection 233

Closing the Deal 237

Creating a Competitive Bid 244

Graduation Ceremony 248

The Year of Transition 249

Chapter 11 Breaking Away 251

Backgammon and Business 253

Not the Man I Used to Be 259

Chapter 12 Does God Play with Loaded Dice? 269

Back to the Futures 271

Accessing the World of Master Physicists 272

Examining the Dice 277

Chapter 13 Making Physics into a Business 283

Home Alone 289

Seed Money 292

The Russians Are Coming, the Russians Are Coming 296

A Made Man 300

If You Build It They Will Come 301

Running on Empty 306

Entering the Big Leagues 311

Everything Is Connected 312

Time to Get Out of the Way 315

Epilogue 317

Acknowledgments 319

Index 321

Michael Goodkin, a successful gambler, failed investor, and mediocre student, was advised by his high school guidance counselor to become a plumber. Eight years later, in 1968 he combined his knack for gambling and lessons learned as a failed investor with the expertise of future Nobel laureate economists to found the company that introduced computerized trading to Wall Street. After seeing the world as a professional backgammon player, in 1996 he founded the software company that pioneered the application of computational physics to financial derivatives. A lecturer at forums including the University of Chicago and the Office of the Comptroller of the Currency, Goodkin holds a JD from Northwestern University and an MBA from Columbia University. The author of Paper Gold, a bestselling novel of financial intrigue, he lives in Chicago.

A Bildungsroman, one jacket blurb calls this book—and sure, it’s a traditional coming-of-age tale. But the story itself is anything but conventional. Goodkin grew up in Chicago, a successful teenage gambler who started playing the market while still in high school. After getting a law degree from Northwestern, he landed in New York at the end of the 1960s. Frustrated with the limited data available to his first broker, and with chatter growing louder about a coming Information Age, “nobody had to tell me that Wall Street, with its polished brass spittoons, was a technological backwater,” writes Goodkin.

It was Goodkin who first computerized arbitrage. Working on an MBA at Columbia, he spotted an opportunity in the emerging field of econometrics. His hustler’s background helped him rope a group of future Nobel economists—including Paul Samuelson—into starting an experimental hedge fund with him. The pleasures of the book lie in the story of their bumpy path to success. The legendary merchant banker Sir Sigmund Warburg—who in 1970 was still the City of London’s éminence grise—listens bemusedly to Goodkin’s pitch. “‘A computer....Fancy that.’ And then his eyes lost their twinkle. ‘Preposterous. Utterly preposterous!’”

“Even after the 2008 crisis proved that many of the banks’ computer-based models were flawed, computers and “rocket scientists” still play a major role on Wall Street. They have pioneers like 70-year-old Michael Goodkin to thank. On paper, Goodkin was an unlikely revolutionary. . . he was one of the first to spot that computers could be used to automate trading. Goodwin made millions, but he received little public credit. . There are no trading tips or secret formulae in the book. Instead, it’s what Jordan Simm in Canadian Business calls a ‘traditional coming-of-age tale’. But, as Simm points out, ‘the story is anything but conventional’, providing a window into a time when Wall Street was a very different place. Goodkin’s blunt style makes him an engaging writer, while few others have gone from street hustler to high finance via such an interesting path.” (MoneyWeek)