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Book Review: Nerds on Wall Street

After my last book review, a reader asked how I was able to read so many books, given my other responsibilities.  My answer is this: I keep a book near me at all times.  When I get a break, I read a few pages.  Over a week, that means a book gets read.  That’s how I read so many books.

Onto tonight’s book: I had a number of friends that liked Nerds on Wall Street, and I liked it as well.  The book has a number of strengths.  The author explains complex financial instruments in relatively simple terms.  The same for complex trading techniques.

The author gives history and background as one that was sucked into computerized finance from a technical background that might have had him in a purer technological role.  As I read what he went through, I said to myself, “He was seven years ahead of me.”  I had my own share of innovative things that I did, but the things done in his era were bigger.

He gives reasonable explanations of how computerized trading works, and what factors they look for in designing trading systems.  He talks about the common factors that dominate trading systems, and a few that he knows of but has not published.  (He gives a taste, but does not serve up the full dish.)

Like me, he serves up a full plate of data mining disasters.  There are a lot of losses to be taken by those who think they have discovered a statistical regularity in the financial markets.  The few significant regularities make sense to seasoned observers, and are not consistent.  They pay off 70% of the time, and kill you 15% of the time.

On Wall Street, if you are really, really smart, they will hand over to you exceptionally advanced tools that you can use to destroy yourself in a unique and memorable way.  So it was for LTCM.


The book is badly edited.  Many elements appear multiple times with little modification.  It sometimes reads like a bunch of articles that was strung together into a book.  The editors should have tried to create something more cohesive.

The last several chapters feel like an afterthought, though many of the ideas presented there are ideas that I have suggested.  I have talked about splitting mortgages into smaller mortgages plus equity appreciation rights.  I have also suggested creating mutual banks, rather than what was done with the TARP.

All that said, the average reader will learn a lot here.  I recommend the book to those that want to dig into how the equity markets became more computerized.  For those that want to understand the same for the debt markets, that book remains to be written.

If you want to buy it, you can find it here: Nerds on Wall Street: Math, Machines and Wired Markets

Full disclosure: If you enter Amazon through my site and buy anything, I get a small commission.  Your price does not go up.  You benefit, I benefit, Amazon benefits.  How could it be better?

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One Response to Book Review: Nerds on Wall Street

  1. Jesse Kittredge says:

    “There are a lot of losses to be taken by those who think they have discovered a statistical regularity in the financial markets.”
    David, take a look at


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.

Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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