📚☕Investment Library: The Money Game

“Enjoy the stories, they always teach more than the rules.” George Goodman, The Money Game

Published in 1968, The Money Game by George Goodman (under the pseudonym ‘Adam Smith’) is one of my favorite books about the psychology and antics of professional investors.

Goodman was writing at a time when a new generation of aggressive, growth-oriented investors was emerging and rebelling against the pervasive conservatism instilled by the memory of the Great Depression.

“The strongest emotions in the marketplace are greed and fear. In rising markets, you can almost feel the greed tide begin. Usually it takes from six months to a year after the last market bottom even to get started. The greed itch begins when you see stocks move that you don’t own. Then friends of yours have a stock that has doubled; or, if you have one that has doubled, they have one that has tripled.”

The 60s go-go bull market shared many similarities with the past few years, including a boom and nosebleed valuations in technology stocks and wild speculation in small (also: enterprising value investors built conglomerates).

As the editor of the new Institutional Investor magazine, Goodman immersed himself in the world of investors and speculators. He shared their gossip and attended their idea lunches. By becoming a trusted insider he was able to capture their mindset, quirks, and motivations.

“A fund manager will tell another fund manager the innermost state of his emotions, the condition of his marriage, and even his purchases and sales, but he will not tell a broker or a magazine or any outsider who is likely not to understand him completely.”

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The Game

Both in his witty prose and his message, Goodman was part of the rebellion against Wall Street’s stuffiness and rigidity. “We are taught,” he wrote, “that money is A Very Serious Business, that the stewardship of capital is holy, and that the handler of money must conduct himself as a Prudent Man.” That was not what Goodman observed in the market. He saw the excitement, the anxiety, the passion. He found his favorite metaphor in the writing of his idol, John Maynard Keynes:

“The game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll.”

“Game? Why did the Master say Game?” Goodman mused.

“He could have said business or profession or occupation or what have you.

What is a Game? It is “sport, play, frolic, or fun”; “a scheme or art employed in the pursuit of an object or purpose”; “a contest, conducted according to set rules, for amusement or recreation or winning a stake.”

Does that sound like Owning a Share of American Industry? Participating in the Long-Term Growth of the American Economy? No, but it sounds like the stock market.”

Goodman was on a mission to rediscover the human side of the market among the emphasis on data and charts. He was fascinated by the players who seemed so passionate, compulsive even, in their pursuit of success. Even the professionals oscillated between rational analysis, intuition, and emotion.

All of this, Goodman thought, was not reflected in the writing about the market. Research and commentary emphasized facts and rational decisions. Meanwhile, investors were led astray as they wrestled with their own psychology and biases.

“It has taken me years to unlearn everything I was taught, and I probably haven’t succeeded yet. I cite this only because most of what has been written about the market tells you the way it ought to be, and the successful investors I know do not hold to the way it ought to be, they simply go with what is.”

The most important parts of the book deal with that departure from rationality. Today, we have a much better understanding of this but Goodman was writing before the advent of behavioral economics. He explored it by closely observing investors at work and collecting their stories. “There is one requirement that is absolute in money managing,” Goodman wrote. “The requirement is emotional maturity.”

“A series of market decisions does add up, believe it or not, to a kind of personality portrait. It is, in one small way, a method of finding out who you are, but it can be very expensive. This is the first Irregular Rule: If you don’t know who you are, this is an expensive place to find out.”

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The real object is playing

Some of the book’s most quotable paragraphs describe the players’ obsessive nature, their borderline addiction. Goodman viewed this as a prerequisite to be competitive.

“If you are a successful Game player, it can be a fascinating, consuming, totally absorbing experience, in fact it has to be. If it is not totally absorbing, you are not likely to be among the most successful, because you are competing with those who do find it so absorbing.”

The litmus test was whether a player was in the game merely for money or for the experience of playing and competing. The real players, Goodman argued, could not find peace in retirement.

“I have known a lot of investors who came to the market to make money, and they told themselves that what they wanted was the money: security, a trip around the world, a new sloop, a country estate, an art collection, a Caribbean house for cold winters.

And they succeeded. So they sat on the dock of the Caribbean home, chatting with their art dealers and gazing fondly at the new sloop, and after a while it was a bit flat. Something was missing.”

Hiroshi Nagai

They were drawn back to the game, to the puzzle, the mystery, the fun, and the opportunity to prove themselves. Competing against the market was a deep need they could not let go off.

“The irony is that this is a money game and money is the way we keep score. But the real object of the Game is not money, it is the playing of the Game itself. For the true players, you could take all the trophies away and substitute plastic beads or whale’s teeth; as long as there is a way to keep score, they will play.”

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Goodman recognized how dangerous this compulsion could be. A core theme of the book is that the game puts the devoted player in a perpetual state of anxiety. But to play successfully requires patience, discipline, and peace of mind — serenity in the face of tension.

Goodman was writing during a bull market, well aware that the good times would eventually come to an end.

“One day the orchestra will stop playing and the wind will rattle through the broken window panes. We are all at a wonderful party, and by the rules of the game we know that at some point in time the Black Horsemen will burst through the great terrace doors to cut down the revelers; those who leave early may be saved, but the music and wines are so seductive that we do not want to leave, but we do ask, ‘What time is it? what time is it?’ Only none of the clocks have any hands.”

What he didn’t anticipate was that the heroes of the book, the fast-acting, intuitive gunslinger managers, would mostly go under. They got drunk on their own success and overstayed their welcome.

After writing the book, Goodman profiled Buffett (and Buffett later appeared on Goodman’s TV program) and Buffett recommended The Money Game in his annual letter as a “magnificent account of the current financial scene”.

“Get a copy of “The Money Game” by Adam Smith. It is loaded with insights and supreme wit.”

I couldn’t have put it any better.

Subscribers can continue reading for my favorite quotes and takeaways from the book.