Michael Goodkin - The Wrong Answer Faster: The Inside Story of Making the Machine That Trades Trillions

Prologue

At the age of 32 in the winter of 1974, I was sitting at a backgammon table in the massive living room of a recently renovated twelfth-century French chateau. On the other side of the room a fire blazed in the enormous see-through fireplace that connected the living and dining rooms. The window next to me offered a view of snow-dusted vineyards. Across from me sat Bernie Cornfeld, the immensely wealthy American financier and international playboy, who six years earlier Fortune had dubbed as being personally responsible for favorably reversing Americas balance of payments.

Bernie had invited me down from London for a few days of backgammon. He was 15 years older than me and liked to play for bigger than my usual stakes. But as a Chicago bookmaker said when I was 15 and unsure whether to stick to one hundred percent of consistent winnings at my small stakes summer game on the beach with kids my own age or to accept his offer to bankroll me for fifty percent of the profits against the older boys who played for bigger stakes, Listen kid, I know odds. Thats my business. And take it from me, older doesnt mean smarter and bigger doesnt mean better.

That advice, in one variation or another, had come to be my guiding light. It was reinforced when at 16 I took a portion of my savings and invested in the stock market to make money while sitting in the classroom. I listened to my stockbroker and took his advice. When he failed me, I followed the advice of the real experts whose opinions were published in monthly newsletters until they too failed me. There was no such thing as an expert in the market. Nobody knew. The market wasnt an investment. It was a bad bet.

When I was about to graduate high school, my guidance counselor, another expert, advised that given my academic recordand probably my attitudeI should enter a trade school and become a plumber. This scared the life out of me. The last thing I wanted was to grow up to hold down a job. When not gambling I had been working part-time jobs, with someone else always telling me what to do, since I was twelve. When the other kids were going to summer camp, taking family vacations, playing team sports, buying new clothes at smart shops, or cruising in their cars, I was either gambling or working two or three jobs, six or seven days a week, buying clothes at wholesale, and taking the bus.

That was okay while going to high school. I liked not being a drain on my fathers meager resources, and I liked the sense of independence that came with earning a paycheck. But working a regular job wasnt how I saw my future. I wanted to be free to travel and sample the world as if it was an enormous buffet. Indeed, until playing against the older boys, most of them in their early twenties and for all practical purposes professional gamblers, my fantasy had been to see the world as a professional gamblerno office, no hours, nobody telling me what to do, good money, and the exhilaration that came with being a regular winner in an apparent game of chanceuntil I realized that they still lived with their parents and considered themselves big shots if they owned a car.

Doubting that my guidance counselor was any better at predicting my ability than the experts were at predicting the price of a stock, I decided to turn a new leaf and start studying in hopes of getting smart enough not to need a job. Between working part-time jobs and picking up scholarships, I earned a law degree at Northwestern and in 1968 I was a few months shy of graduating from Columbia with an MBA.

While my classmates were interviewing for jobs, I felt the time had come to see whether all my book learning had paid off. If I could do something outstanding in New York, the place where if you could make it there you could make it anywhere, I could thereafter live by my wits and see the world as my own man.

But this was 1968. There was no such thing as a venture capital industry. The Internet had yet to be invented. Bill Gates was 12 years old. Columbia graduates werent out founding high-tech companies. They were looking for jobs.

Having no idea what to do, by chance I noticed there were no computers on Wall Street. From my previous experience as a failed teenage investor, I knew that nobody knew the right price for anything, and that Wall Street was a losing game. On the other hand, I knew how to win a card game with an apparently losing hand by anticipating what the other guy was going to do before he did it.

Taking Wall Street for the gamble it was, and remembering that older players and bigger stakes didnt mean smarter or better, the thought occurred to me that it might be possible to beat the pros at their own game not by trying to come up with the right answer but rather by using a computer to come up with the wrong answer faster.