George Will tells a story about Newt Gingrich that rates occasional re-telling for those who follow securities markets: it was 1994 and Mexico’s debt troubles had revealed themselves in worrying fashion. Gingrich lamented to Will that “everyone is selling,” only for Will to reply that by extension “everyone must be buying.” Well, yes. Markets are markets precisely because “everyone” responds to information differently. For a pessimistic seller to express that pessimism in the marketplace, an optimist must be able to express optimism.
Will’s story and its broader message came to mind while reading Billy Walter’s excellent and essential new book, Gambler: Secrets From a Life at Risk. The individual who gifted me with this memoir described Walters in his note attached to the book as “possibly the best professional gambler in the world.” Notable about this individual is that he’s a brilliant investor. This is important mainly because Walters’ book is most valuable as a book about investing. What makes him the world’s greatest gambler is that he approaches games in the way that great investors approach stocks and bonds, including with the maxim that “everything begins and ends with value.” Unsurprisingly, Walters is also a very successful investor, one who loves when the stocks he’s heavily researched and purchased fall: this means he can buy more of what he wants to own at a lower price.
About Gambler, the bet here is that most will buy it for the revelations about Phil Mickelson, and that many interested in Mickelson think of Walters as the formerly imprisoned “gambler” who was busted for the impossible to legally define (see Daniel Fischel’s Payback) “insider trading.” No doubt Walters’ discussion of Mickelson is interesting, but that’s not the reason to buy the book. Investors will most profit from it, at which point the “insider” tag rates early dismissal.
The reality is that is that Walters’ history as a brilliant gambler had placed him (improperly) on the wrong side of the law, only for a 60 Minutes story on him to revive the FBI’s interest in getting Walters on something. What a shame. It can’t be stressed enough that Walters is a great gambler because he’s a great investor, and the very attention to detail that makes him the world’s greatest gambler is what makes him a great investor. Walters is the opposite of lazy. His bets like his investments are born of a relentless pursuit of knowledge about the position he’s taking. Crucially, endless wiretapping of his phones by the FBI and other federal spooks never revealed much of anything that could be construed as “insider trading,” but even if it had, no sane person would deem “insider trading” a bad thing in the first place. Please read on.
Everyone responds to information differently. See above. Whether it was 1994, 1987, or 1929, trading volume was high because presented with the same knowledge, there are myriad different responses. Please keep this in mind with Walters’ gargantuan bets top of mind. Without him, without his relentless pursuit of an information edge in making bets, the market for gamblers would be much thinner, and most problematic for the “little guy.” The quotes are mine. Put another way, “insiders” like Walters make the market.
Walters writes that “By taking my money early, Jack [Binion] was giving his sportsbook manager the entire week to adjust his line and limits based on bets for or against me.” Translated, the bookmakers were frequently eager to take the bets of the world’s greatest sports gambler precisely because so much knowledge informed those bets. In Walters’ words, Binion “wanted to know what I knew.” Yes!
Walters wasn’t nor isn’t some kind of sentiment-driven gambler who bets on USC, Texas, or the Dallas Cowboys to win every time. He’s very clear in his “Master Class” chapter that a successful gambler must “Stick to the facts. Avoid being a fan driven by emotion and loyalty.” In other words, information is what’s behind his bets, which is why the bookmakers want to know what he knows. From the knowledgeable (who is injured, who is really injured, how is the field, who will officiate, etc.) markets are created in the gambling space, thus creating a much more “level playing field” for the proverbial “little guy.”
Despite this truth, nitwit politicians, regulators and movie directors (think the misguided “classic” film Wall Street), continue to rant against “insider trading.” Were they moderately informed, or perhaps less ambitious (Walters properly skewers Preet Bharara), they’d recognize that securities markets without “insiders” are blind markets, and for being blind, the kind of markets most likely to trip up the little guy. Think Walters again. Bookmakers would take his bets early as a way of setting informed betting lines. Looked at through the prism of equity markets, they’re information machines. What moves them in substantial fashion is new information that was formerly unknown. Big losses or misses emerge from the previous truth. Which is why the best markets are the most informed ones. Put very simply, in a sane world the insiders would be heroes for taking big positions based on knowledge gleaned, big risky positions that frequently don’t bear fruit.
As Walters staggering gambling losses reveal, it’s very difficult for even the most informed bettor to get it right the vast majority of the time. Investors are no different. As investor turned restaurant entrepreneur Nick Kokonas (Alinea, among others) relayed to readers in Life, On the Line, “If you are good” on the trading floor, “49 percent of your decisions will be wrong. Even if you are great, something just short of a majority will be losers.” Remember Kokonas’s numbers in processing those of Walters. He points out throughout his book that “gamblers need to win 52.38 percent of their bets just to break even.” He adds that “for the average bettor,” the latter is “like trying to swim the English Channel at night, doing the backstroke, without a wetsuit. Surrounded by sharks.” Which is another reason the knowledgeable are so essential to betting markets: by taking outsize financial risks based on their smartest of “smart money” knowledge, they move betting lines to their proper place so that the “average bettor” puts money to work in much more informed waters, as in those populated by fewer sharks. In sports gambling, Walters is information personified only for lines to reflect this truth. The more informed those lines are, the fewer surprises for the average bettor once the game starts.
To be clear about what’s been written so far, none of it is to suggest that Walters broke the law on the way to his prison stint in recent years. The deeply held view here is that much like Michael Milken in the late ‘80s, Raj Rajaratnam in 2011, and Walters in 2017, ambitious individuals in the employ of the federal government regularly ruin reputations sans evidence only to manufacture “crimes” to fit their ambitions of putting away the achievers. Walters, like Milken and Rajaratnam before him, was a serious investor. And a very good investor. There’s quite simply no way to make serious money in investing or “gambling” without an incredibly serious, wildly disciplined approach. See above. This truth was sadly no problem for Rudy Giuliani back in the ‘80s, Bharara in the 2010s, nor will it be a problem for the ankle-biters eager to follow in their footsteps. The horrid truth is that government has unlimited resources. If they want to get you, they will.
The above brings up a counterfactual that kept coming to mind with Walters. He as mentioned suffered Bharara’s ambition, legal counsel of his own that put the jurors to sleep, plus when Walters needed Mickelson to publicly proclaim what he had privately, that Walters had never provided him with “inside information” about Clorox and Dean Foods, Mickelson ultimately turned tail. Walters rightly views Mickelson’s betrayal as a factor in his eventual incarceration, and he has a point: given Mickelson’s “celebrity and personality,” just him defending Walters with a comment for the media (let alone getting on a witness stand) would have perhaps won the day. It’s compelling, but then the feds had little on Milken or Rajaratnam either, only for them to spend time in prison. It’s all a speculation that with or without Mickelson’s help, the feds were shamefully going to figure out a way to get Walters.
The question is why? Ok, we know why. People in government want to get rich too, but they want to do it the easy way. Through notoriety, through bringing other people down. The shame is how unnecessary it all is. Walters’ gambling stories explain why. In gambling, like investing, your reputation is all that you have. If you’re breaking trades no one will trade with you in the same way that no one will take the bets of someone known to run from losses. The markets are regulation par excellence. This is important in consideration of “insider trading.” And it is because as with every equity purchase or bet, there’s always someone on the other side. Assuming Walters’ superior knowledge as a gambler always resulted in wins, it’s no reach to say he would soon find no one willing to take his bets. Except that they do take his bets because he doesn’t just inform betting lines, he loses a lot too. Again, the best of the best in terms of knowledge are frequently wrong. Equities are no different. Someone known to always be right based on the impossibility of not just perfect non-material information, but also the ability to wisely trade on that information, would soon enough find few willing to take the other side of their trades.
It’s just a reminder that laws against “insider trading” don’t just blind markets, they’re rooted in the laughable notion that it’s easy to trade based on insider knowledge. If it were, insiders would once again have no one to trade with. They’re taking huge risks when they bet or buy/sell based on information gleaned (Walters writes that in Vegas, “if you weren’t trying to get an edge on your opponent, you weren’t trying”), and they are simply because their “bunny” frequently doesn’t have a good nose. In other words, the problem with gambling and equities is too much government and laws, not too little. And the losers are the regular gamblers and investors who put money to work in markets that aren’t fully informed.
It all brings up a minor quibble with Walters. In the aforementioned 60 Minutes profile that he ties to his eventual imprisonment, Walters made lots of comments about being “swindled out of quite a bit of money in the stock market,” of the Vegas hustler being hustled by Wall Street (“no doubt about it”), of a “lot of bad guys, a lot of thieves” on Wall Street who would “steal the Lord’s supper.” Walters knew and knows better. It’s in his book. On p. 165 he writes that the smartest bookmakers understand that “there is no business if there are no winners.” Exactly. Gambling markets, like equity markets, just are. There’s two sides to every trade. Bookmakers and traders would quickly be out of business if they took sides in addition to taking bets. Instead, they arrive at lines and prices by balancing bets and bids.
Unfortunately, Walters did spend time in prison. His time in a minimum security prison in Pensacola is eye-opening in that the conditions were awful. Media types have always attached a “country club” description to minimum security prisons that Walters quickly squashes. Reading about some of his experiences, it was difficult to not think about Elizabeth Holmes, and what this mother-of-two must be enduring for having had the temerity to try something audacious, only to raise copious sums in pursuit of her vision. She’s in prison for what? Better yet, why is it that government always wins? Why is it that every time there’s something amiss (or not amiss) in the outside world, that government gets to levy huge fines, gets to put people away, and in doing both, those associated with government attain major, wealth enhancing notoriety? More than most would admit, it doesn’t take an anarchist to note that the vast majority of governmental meddling is superfluous, and as the experiences of Walters attests, dangerous and life-sapping.
Along the lines of the above, Walters writes that “the admissions process [for prison] is designed to dehumanize and deliver a sincere, stark message: we own you.” How awful. After that, how awful to have to share tiny living spaces with others, bathrooms and showers with others, but most of all, how awful to lack the freedom to make even the most basic of decisions for yourself. As Walters puts it, “I had no clue just how much we should all treasure our liberties until I lost mine.” Yes! Along these lines, it would be interesting to know Walters’ perspective on the lockdowns related to the coronavirus: he’d spent a few years behind bars yearning for basic freedoms, only for Americans to so blithely give up theirs. It’s hard not to believe that Walters would have brought a different view to this tragically anomalous stretch of U.S. history when a nation founded on skepticism about politicians allowed the most panicky of pols to take away their rights to work, operate their businesses, go to school, exercise, and live.
Walters writes that “In prison, your heart breaks minute by minute, hour by hour.” It’s recollections like these that make Walters book so much more than one about gambling and Phil Mickelson.
Despite that, readers surely want to know about Mickelson. Walters’ disdain is obvious, but plainly restrained. Allusions to dastardly ways more than anything, but also reverence. Walters writes that Mickelson was “willing to put it all on the line and risk losing a golf tournament to hit one miraculous shot.” In describing Mickelson’s boom/bust ways, Walters would no doubt agree that he was describing himself in a sense. A very rich man today who has “made hundreds of millions in the stock market” in addition to his gambling hauls, he’s also done quite well in residential and commercial real estate, thirteen golf courses, plus numerous car dealerships. The similarity to Mickelson lies in a persistent theme in the book: he would earn or win enormous sums one day, but lose just as much or more the next. Walters conducts business the way that Mickelson plays golf.
Where Walters would presumably say he and Mickelson differ is in terms of empathy. He writes that “people would never shower this man with so much affection if they knew him the way I did.” About the latter, he leaves it to the reader to guess what’s beneath the surface. The main revelation is that Mickelson has “wagered a total of more than $1 billion during the past three decades,” and that he was placing numerous $100,000-$200,000 bets on a daily basis. With a net worth in the $250 million range, Mickelson plainly had the means to lose in size amounts, but the habits signal someone less than the family man image he presented to the public. Walters concludes that “Phil doesn’t care about anyone but himself,” which might rate a quibble in that if he were more caring about himself, he’d arguably be more of a man for others.
Still, that’s a distraction from what is at its core a book about how to approach investing, and gambling. About the latter, it’s increasingly true that gambling is a pejorative for what is actually investing, and Walters’ approach shows why. The latter also explains why hedge funds increasingly have divisions focused on sports gambling. It’s legit. In my 2018 book The End of Work, I wrote of sports gambling within hedge funds as a happy sign of the brilliant evolution of work, and I stand by that. What I would amend was the mere suggestion that this form of work is less serious than other work involving asset allocation. It’s not. It’s legit because it’s serious work that is about identifying value, not cheering on one’s favorite teams.
Importantly, the book extends beyond investing. I’ll be referencing Walters’ recollections as a car salesman and dealer in the future as a way of discrediting mindless rants about banks “multiplying money,” and investors engaging in “naked shorting.” Walters’ experiences show why fears of both are nonsensical.
If the book had a weakness, it could be found in the first third of it. No doubt Walters quite understandably needed to tell of an early life defined by loss (his father died when he was 18 months old, and his mother left him with Kentucky relatives soon after), but the recollections were choppy and at times contradictory. On p. 24 he wrote of having amassed a $223 stash from a paper route that he, in typical boom/bust fashion brought to the pool hall. This is mentioned because on the very same page he wrote of being taunted with the nickname “Patches” at school for his run down clothes, yet in the very same paragraph he recalls that “Grandmother never let me leave the house without a clean shirt and pressed pants.” The anecdotes didn’t tessellate.
After that, there were arguably too many “Puggy Pearson” stories in the first third. Pearson was a real person, and the point here is that there were lots of colorful types like him that filled the book’s early parts. The stories and characters read as overdrawn. Goodness, in one recollection a low-life puts a gun to Walters’ head while an ad for Bonnie and Clyde played in the background. It read as a bit difficult to believe. And realistically unnecessary.
Walters is by numerous accounts the best professional gambler in the world, a field in which something less than 1 percent can earn an actual living in. Which means he’s one of the best investors in the world. His story and his advice rates a read regardless of how colorful (or not) his past is. Still, it’s the color that sells books. Hopefully it sells Walters’ book. What an excellent read.
