Flash Boys, Ramanand Sagar’s Ramayana and the bias in the narrative

I just finished reading Michael Lewis’s Flash Boys. It seems like a nice book on financial markets and high frequency trading (HFT), and how HFT makes money. And as is the case with Lewis, the story is very well told.

However, having worked in HFT in the past, and having written a book on market design (which will be out next month), there was one thing about the book that left a massive sour taste – that it makes a value judgment.

Fairly early on in the book, Lewis makes it clear that HFT doesn’t actually add value to the market, and in fact extracts value. And from then on, HFT and hedge funds who practice it are the “bad guys” of the book, and Brad Katsuyama and the rest of the IEX guys are the “good guys”.

If this were to be considered a journalistic account, it would be horrible due to the fact that there is not even an attempt to present the view of the opposite side – of the real flash boys (people working on HFT), and how HFT might actually be beneficial. It also fails to document whatever might be the shortcomings of IEX.

As the Ramanand Sagar retelling of the Ramayana has showed us, when you reduce a story to a story of “good against evil”, the story is robbed of all nuance, and what you get is a rather simplistic version. Any facts in the story that run contrary to this simplistic version tend to be glossed over (or reduced in importance). And what the reader gets is a wholly one sided view which may not actually be correct.

HFT is so fascinating (apart from the money it makes for its practitioners) that there exists scope to write a great value-neutral book about it (and someone who writes as well as Lewis is very well placed to write that). It is thus disappointing that Lewis has eschewed that and has instead written what effectively looks like PR for IEX.

In any case, reading the book gave me one valuable piece of input. In my book (that will be out next month), I’m starting each chapter with a quote. And the quote to the introduction of the book has been supplied by Flash Boys. It goes, ‘”Liquidity” was one of those words Wall Street people threw around when they wanted the conversation to end, and for brains to go dead, and for all questioning to cease’.

Perhaps, the quote suffices to tell you all that is wrong with the book (Flash Boys)!

Half an Indian Girl

So my first attempt in twelve years to read pulp fiction ended midway, as I gave up reading Chetan Bhagat’s One Indian Girl after around 130 pages (~40% into the book).

My main problem with the book is that it uses too many words for what it has to convey. There are shades of good writing sprinkled through the part of the book that I read, but at least once every ten pages you start wondering where the story is going, and wondering if so many more pages are worth reading.

Based on the plot that I gathered through my reading of the book, it seems written with a Bollywood script in mind. And while it might make for good screenplay, the quality of writing means that the amount of effort and patience required in ingesting and finishing the book is way too high.

In a way, the book reminded me of a short story by Mulk Raj Anand (ok outragers can start outraging now) called Old Bapu that I’d read a few years back as part of some course at IIT Madras. That story begins with the observation that in the split-second before death, one’s entire life flashes in one’s mind.

And so you have this book, set at the protagonist’s wedding, where she looks back at her life and relationships so far, and that I think is a fine premise. The protagonist’s character is also fairly well chosen and most of the events in the part of the story I read seem fairly realistic.

And then, as they say in Bollywoodese, there are some kahaani mein twists and for someone who had largely appreciated the book for what it was thus far, it can be a bit throwing off. And then when you see that after these twists you have a further 160 pages to go, you end up losing all motivation.

So I shut the book, and turned to my wife who had finished reading through it (albeit after some struggles) a week back. She narrated the rest of the story in her own way, a hundred and sixty pages compressed into two minutes of speech. And having heard this narration, I’m glad I didn’t waste time reading those pages.

A long time back I’d blogged about whether the length of a book is a bug or a feature, and suggested that in fiction one would look at extra words as a benefit, since it’s likely to keep you entertained. I revise that observation now, to say that extra words in a book of fiction (or any book) are fine if and only if they add to the story.

This book, in my opinion, has too many of those extra words, which makes it damn easy to get bored as you read it, and very soon you can’t stop wanting the book to end soon!

The Bollywoody plot aside, I could think of this book being written in 100 pages, which would have made it far far better! I don’t know when I’ll attempt reading pulp fiction next!

Also read my analysis on why Half Girlfriend, Chetan Bhagat’s earlier book, failed at living up to its potential.

Acknowledgements

As I continue my progress towards publishing the book whose manuscript I’ve completed, I’ve started to think about the acknowledgements section, which I’m yet to write. Each time I read a new book now, I make sure I read the acknowledgements, and see who all people have thanked. I’ve not gone to the extent of formally collecting data from these acknowledgements, but I must say the effort is underway.

Based on a recent discovery, though, I think all this research is moot. Recently I was cleaning up an old cupboard (the kind that comes embedded in a cot) in my grandfather’s house, and happened to stumble upon my B.Tech. project. I’d brought it home and kept it aside, and happened to open it today.

Overall, in hindsight, I seem to have done a better job of my project than I’d imagined. I’ve always remembered that rather than solving the problem I’d taken up, I’d constructed a proof to show why it couldn’t be solved (something my mother always made fun of). But reading the report, it appears that I’ve gone beyond that, and constructed some approximate and randomised heuristics to tackle the problem – so I’m happy about that.

The more interesting bit is the acknowledgements section. It pretty much encapsulates my life at IITM. Again, I remember having done some research looking at other people’s acknowledgements to see who all they’d thanked, and I followed the same process – guides, professors, lab mates, etc. And then I’ve mentioned some friends.

The first part of the acknowledgements section is not particularly insightful so I’m not pasting it here. The second part makes for fun reading though, in hindsight. I like the way I’ve been fairly informal (in such a “formal” document as my B.Tech. project report), with puns and all.

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The key thing to note is the last paragraph. I seriously mean it (even now) when I say that the best part of my life at IITM was the time spent at Patisserie, and all the discussions I had there. The discussions were diverse, with lots of different people, and we spoke about different things on different days.

It may not be a stretch to claim that I learnt more during my discussions there than during the time spent in classrooms. And if I today considered well-networked in my batch (and surrounding batches) at IITM, it’s again due to the time I spent there.

Now to think about how to adapt this acknowledgements section to something that makes sense for the manuscript I’ve written!

Books, Music, Disruption and Distribution

Having watched this short film by The Economist on disruption in the music business, I find the parallels between the books and the music businesses uncanny.

Both industries have been traditionally controlled by the middlemen – labels in the case of music, and publishers in the case of books. Both sets of middlemen are oligopolies – there are three big music labels and four (?) major publishers. This is primarily a result of production costs – traditionally, professional recording equipment has been both expensive and hard to get. Similarly, typesetting and printing a book was expensive business.

However, both industries have been massively disrupted in the last couple of decades, primarily thanks to new distribution models – streaming in the case of music, and online vendors and e-books in the case of books. Simultaneously, the cost of production have also plummeted – I can get studio quality recording and mixing software on my Macbook Pro, and I already have a version of my book that looks good on the Kindle.

Yet, in both industries, the incumbents strongly believe that they continue to add value despite the disruption, and staunchly defend the value of the marketing and distribution they bring. In the above video, for example, a record studio executive talks about how established artistes may do well going “indie”, but new artistes require support in production, marketing and distribution.

If you see blogs and news articles on publishing and self-publishing, on the other hand, most of the talk is about how little value publishers themselves bring into the marketing and distribution process. While publishers continue to have a broad monopoly on the traditional distribution chain (bookstores, primarily), they have no particular competitive advantage in the new channels.

One of the successful indie artistes interviewed in the above video talks about how he was successful thanks to the brand and following he built up on social media, which ensured that his album had several takers as soon as it was released. It is again similar to advice that authors who want to self-publish get!

As someone who has completed a book manuscript and is looking for production and distribution options, I find the developments in the indie space (across products) rather interesting. Going by all this, maybe I should just give up on the “stamp of approval” I’m looking for from a traditional publisher, and go indie myself!

I leave you with a few lines from one of my favourite poems, which I believe is a commentary about the music record label industry!

Now the frog puffed up with rage.
“Brainless bird – you’re on the stage –
Use your wits and follow fashion.
Puff your lungs out with your passion.”
Trembling, terrified to fail,
Blind with tears, the nightingale
Heard him out in silence, tried,
Puffed up, burst a vein, and died.

 

Equity financing of books

A rather uncharitable view of the book advances that legacy publishing houses give out to established (non first-time) authors is to look at it as “convertible debt”, as this piece by Matthew Yglesias points out.

An advance is bundled with a royalty agreement in which a majority of the sales revenue is allocated to someone other than the author of the book. In its role as venture capitalist, the publisher is effectively issuing what’s called convertible debt in corporate finance circles — a risky loan that becomes an ownership stake in the project if it succeeds.

Now, as I consider possibly self-publishing my book, while simultaneously attempting to sell it to established publishing houses, I realise that apart from the convertible debt, publishing a book also involves a massive sale of equity.

I’ve finished the manuscript, and edited it once. It needs further editing, but I’ve put it off so far in the hope that I can sell the book to a mainstream publisher, who will then take care of the publishing. However, given that I might end up self-publishing, and from what I read that publishers don’t do a great job of editing anyway, I might need another pass or two.

And then there are other things to be done before the book comes out in print – a cover needs to be designed, illustrations need to be put in, maybe we should get someone to do an audiobook, and all such. Now, if a mainstream publisher picks up the book, I’d expect them to take care of these. Else I’ll need to spend to get people to do these things for me.

When people first told me that royalties in book publishing are of the order of 7.5% of cover price, it was a little hard to believe. However, looking at the costs involved in the publishing process, it’s not hard to see why publishers take the cut that they take. The problem, though, is that it involves you selling equity in your book.

By going for a mainstream publisher (rather than self-publishing), you are saving yourself the upfront cost of getting your book edited, designed and “typeset”, in exchange for a large portion of the equity of the book.

Looking at it in another way, you are trading in your limited downside (what you spend in designing, printing, etc.) for what might be a massively unlimited upside (in case my book is a runaway success). For the most part, considering that most books don’t do that well, it isn’t a very bad deal. However, considering that downside is limited (in terms of costs) I wonder if it makes sense to trade it in for a large stake of what could be a large upside.

In any case, the main reason I’m still pushing to get mainstream publishers is because the self-publishing market is a “market for lemons“. With barrier to entry not being too high, lots of bad books are self-published, and so anyone who thinks they’ve written a half decent book will try to find a mainstream publisher. And this further diminishes the average quality of self-published books. And further dissuades people like me from self-publishing!

 

Help me name my book!

The more perceptive of you here would’ve known by now that I’ve finished the manuscript of a book on Liquidity. Having finished the draft, and one basic round of editing, I’m now sending it around to publishers, hoping to strike a deal.

One of these publishers wrote to me saying that while she loves the chapters I’ve sent her (a small sample), she doesn’t like the name of the book. “Liquidity”, she says, is too bland and doesn’t reflect the contents of the book, and has asked me to come up with a better name.

And I’m at a loss, in terms of coming up with a name. I don’t even know what kind of name I should pick for the book. So I need you to help out!

The book is about liquidity, in the context of different markets. Apart from the handful of obligatory chapters (my chapters are mostly tiny, and there are 21 of them) on financial markets, I have stories on markets in taxis, dating, footballers, real estate, agriculture, job hunting, food, etc.

Here is part of an introduction to the book I’ve written, which might help you help me!

Why do people with specialised skills find it hard to switch jobs? Why do transfer fees for footballers always seem either too high or too low? Why are real estate brokers still in business despite the large number of online portals that have sought to replace them?

 

[….]

… we analyse why the market for romantic relationships, both matrimonial and dating, is mostly broken, and none of the new platforms are doing anything to fix it. We take a look at how taxi regulation is inherently inefficient thanks to liquidity issues, and how Uber’s much- maligned surge pricing algorithm helps create liquidity by means of superior information exchange. We will also see how liquidity helped build up the credit derivatives market, and then ultimately led to the global financial crisis.

So if you have any cool ideas on what to name the book, or at least a framework I need to follow to name it, please do let me know in the comments here! It might help you to know that the “acknowledgements” part of the book hasn’t been written yet!

On writing a book

While I look for publishers for the manuscript that I’ve just finished (it’s in “alpha testing” now), I think it’s a good time to write about what it was like to write the book. Now, I should ideally be writing this after it has been published and declared a grand success.

But there are two problems with that. Firstly, the book may not be a success of any kind. Secondly, it will be way too long after having finished it to remember what it was like to write it. In fact, a week after the first draft, I’ve almost already forgotten what it was like. So I’m writing this now.

  1. Writing is a full-time job. I got this idea for the book in October 2014 when I was visiting Barcelona for the first time. I wrote the outline in November 2014. Despite several attempts to write, nothing came out of it.

    During a break from work in October 2015 I managed to get started, but I’ve re-written all that I wrote then. Part-time effort doesn’t just cut it. It wasn’t until I came to Barcelona in February that I could focus completely on the book and write it.

  2. You need discipline. This probably doesn’t need to be explicitly stated, but writing a book, unlike writing a blog post, is a fighter process, and you need a whole load of discipline and focus. After a week or two of preparing the outline, I prepared fairly strict deadline regarding when I would finish the book. I had to reset the deadline a couple of times, but finally managed it.
  3. There is no feedback. I think I wrote about this a few days back. The big problem with writing a book is that you spend a significant amount of effort before even a small fraction of your customers have seen the product. So you soldier on without any feedback, and it can occasionally be damn frustrating.
  4. You feel useless. Writing a book can introduce tremendous amounts of self-doubt. One day you think you’ve completely cracked it, and your book will change the world. The next day you start wondering if there’s any substance at all to what you’re writing, and there’s any point in going ahead with it. On several occasions, I’ve had thoughts on abandoning it.
  5. Getting away helps. The only reason I didn’t abandon the book when I had my bouts of self-doubt was that I was away in Barcelona with nothing else to do. It wasn’t as if I could ditch the book and find some work to do the next day. Being away meant that the TINA factor pushed me on. There was no alternative but to write the book.
  6. Getting in a draft is important. You are likely to have bad days when you’re writing. On those days you feel like giving up. On putting things off for another day. Reams have been written about great writers stalling their books for several days because they couldn’t find the “right word”. I don’t buy that.

    Found that when I’m in a rut, it’s better I simply push through and finish the chapter. Editing it later on is far easier than writing it again from scratch.

  7. There is a limit to how much you can write. When I said it’s a full time job you might think I spent 8 hours a day on the book. I took around 70 days to write it (including a 10-day vacation), and the draft weighs in at 75,000 words (I intend to cut it before publication). So it’s less than 1200 words per day on an average.

    That doesn’t sound like a lot, but trust me, writing on a continuous basis is quite hard. A lot of time goes in fact checks and in getting links (I don’t think I still have all the footnotes and endnotes I need for the book). Writing a book is far more complex than writing a blog post.

  8. Writing is tiring. This isn’t something I figured out while writing the 2000 odd posts I’ve put on this blog. When you’re writing a book, and for an audience, you realise that you get tired pretty quickly. I don’t think I was able to work more than four hours a day on any of my “writing days”. And four hour-days would leave me a zombie.
  9. You need a schedule, and a workplace. I did the pseud romantic thing. The entire book was written at this WiFi enabled cafe near my place in Barcelona. Pseud value apart, the point of having the workplace was that it brought a schedule and some discipline to my days. I would go there every morning on writing days (exact time varied), get a coffee and sit down to write. And not rise until I had finished my target for the session.

    Two days back I went there to work on something else. I figured I couldn’t – that cafe is now forever tied to my writing the book. The kind of focus required there was of a different kind.

I’ll stop for now. I hope to republish this blog post once the book has hit the stands!