"There is only one thing bull markets are certain to bring and that's bullshit. It is what drives the money into them."
Such is one of the many pieces of sage analysis in Jake van der Kamp's Doctor! Doctor!
Van der Kamp, to those who don't know, is a familiar face in Hong Kong's Foreign Correspondents' Club. Each day he can be found on the corner table with a laptop writing his daily column for the South China Morning Post.
His column has become widely read, in part because it is a good antidote to cant, and thanks to Jake's unique position as a man who worked for many years in broking. He thus knows one or two things about how the industry works.
So one should not be surprised to hear that he has written a book about just that: how the industry works.
At the beginning of the book he admits to "biting the hand" that fed him, but he says he can't resist. In the ensuing chapters he chronicles some of the absurdities of the industry and some of its inherent conflicts of interest.
These conflicts are many, but can be summarized as front running (with anecdotes from Jake's career to illustrate how prevalent the practice used to be), a lack of compliance in firms, a lack of independent research (thanks to corporate finance) and stuffing clients with trades at the wrong price (while measuring different fund management houses by their pain-threshold).
Particularly pertinent to today's market is the chapter on how the industry hires and fires. Recalling the first time he was fired, he notes the sage words of a colleague: "No one ever amounts to anything in this trade unless he's at least once been thoroughly and soundly sacked. It'll do wonders for you."
Always look on the bright side, as they say.
Jake also gives his analysis of why the Americans are so much better at investment banking than the British or (other) Europeans. The Americans are always the first to innovate and are the most aggressive, he says. He also predicts even more US dominance in the future. That said, his criticism of Americans is sometimes as lavish as his praise. The anecdote of the US boss who came in, didn't touch a morsel of the Chinese banquet and then went to McDonalds afterwards kind of sums it up.
While portraying many of the British in the industry as amateur idiots with a military background and an aversion to brown shoes, he does say that the British have one advantage over Americans "They instinctively have a much better feel for the ways of the foreign lands to which they go."
This he puts down to centuries of imperialism.
One of the most entertaining chapters deals with late night client-servicing. This typically happens in Bangkok and Manila, can involve copious amounts of alcohol and using your American Express card to ensure the fund manager from Edinburgh gets a taste of the local market.
Interestingly, van der Kamp reckons such evenings of debauchery are more prevalent in Asia since there is a greater need to build personal relationships and trust between firm and client. In mature markets, such as the US and Europe, no such trust is required. Everything is more boring and institutional. Asia meanwhile is the wild East.
The book is full of anecdote and observation. For example, he notes: "Australians think of their country as being part of Asia, but the rest of Asia doesn't. I once overheard my secretary ticking off a mailing clerk for having grouped Australian clients wrongly on a mailing list. "You've put Australia into Europe," she said. "Australia doesn't belong in Europe. It belongs in North America."
Jake has spent a good deal of his career as a journalist, and he is not averse to throwing criticism at the financial press too. In fact, there's a lot of criticism in this book, full stop.
Indeed, his broad conclusion seems to be that investing is not for the faint-hearted and if you do so via a professional you are more than likely to get ripped off.
My favourite rule of thumb is his verdict on buying derivatives: "For every adjective you add to the instrument you add 2% to the dealing fee. Nouns count as adjectives here and you can't cheat by making Euro part of another word. So let's see. For an OEX short strangle you get hit with at least a 6% chop. That's 6% on the way in and 6% on the way out."
No wonder, he says, banks love structured products so much.
