Sunday, June 1, 2014

The Buy Side

I recently read "The Buy Side", a 2013 Wall Street memoir by Turney Duff. Duff tells the story of his Wall Street career which was reasonably successful until he was brought down by abusing drugs. I didn't care for it. Much of the book is devoted to his struggles with drugs (especially cocaine) and I have never found drug fiends particularly sympathetic or interesting.

I am more interested by the business aspects of Wall Street and Duff doesn't offer much insight into them. Duff worked on the "buy side" (hence the title of his book) which meant he was employed by hedge funds to trade their portfolios, buying and selling stocks. Sometimes he was told what trades to make, at other times he had discretion to establish his own positions. In both cases for reasons that are unclear to me (and which Duff makes no attempt to explain) the hedge funds that employed him were willing to pay millions of dollars in inflated commissions. Naturally this made Duff a very popular man with his counterparties on the "sell side" as their incomes were directly tied to how much of his trading Duff chose to do with them. They showed their appreciation by extravagant entertaining which included in Duff's case supplying drugs. Duff proved unable to handle the drugs in the long run perhaps in part because he wasn't really happy with his job even when he was doing well (1.8 million in his best year by his account). Duff ended up in rehab twice when his drug abuse rendered him unable to perform adequately at (or even at times show up for) work. By his account he still had employment possibilities on Wall Street even after his second stint in rehab but chose to try and become a writer instead.

Duff worked for a time for Galleon Group which has since been brought down by an inside trading investigation which led to Galleon's founder, Raj Rajaratnam, being convicted and sentenced to 11 years. Duff didn't like Rajaratnam and depicts him as engaging in a variety of questionable behavior. But fortunately for Duff he had left well before Galleon got in trouble with the law. Duff himself admits to performing acts at work (at Galleon and elsewhere) of dubious legality. At times he is worried that this (or his drug use) is under investigation and will get him arrested but it appears these worries were unfounded (possibly just drug induced paranoia). Duff doesn't appear concerned that his book will cause him legal problems and as a practical matter having left Wall Street he is probably not a high priority for prosecution.

The main point I would take from this book is that there is a lot of extravagance and waste on Wall Street ultimately funded by excessive client fees. Fortunately these fees can often be avoided (or at least substantially reduced) if you are on your guard which I would certainly recommend when dealing with Wall Street.

While this book contained a few points of interest I don't recommend it. It is pretty long and I didn't find it compelling. Michael Lewis's Wall Street memoir "Liar's Poker" is much better and I also liked "A Colossal Failure of Common Sense" more although I didn't recommend it either.

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