Under the Cover: Playing it Right on Wall Street

How did Kamal Gupta beat the odds at blackjack tables in Vegas and keep his calm – and his assets – amid the fervent “dancing” that led to the 2008 financial collapse on Wall Street? It all comes down to a different definition of success, as he tells us in this expanded excerpt from his memoir Play It Right (ECW Press).


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It is a minor miracle that I ended up on Wall Street in the first place, let alone stayed for twenty-seven years. I was an immigrant from India, a bored computer scientist who had turned himself into a professional blackjack player and who had once taken a vow never to run with the “greed is good” crowd. Nevertheless, in an extraordinary turn of events, my gambling skills landed me a job at Lehman Brothers. I have spent the past three decades first beating the casinos for a hundred dollars at a time and then managing hundreds of millions of dollars at large hedge funds. However, I have never equated success with money. Instead, I have adopted Maya Angelou’s definition that “success is liking yourself, liking what you do, and liking how you do it.” In my case, those principles have translated into finding games that I love to play and playing them well while making sure that I sleep well at night. Wall Street, on the other hand, believes that it exists solely for making money, a view that is directly responsible for the great financial crisis of 2008. I played blackjack for the simple reason that it was the only casino game where a player can turn the odds in his favour. Consequently, from the moment I set foot on Wall Street, I set about finding an investment method that would turn the odds in my favour in financial markets as well.With no Million Dollar Blackjack to show me the way, I would have to start from scratch. I set myself one simple goal: find a way to consistently beat the market. No ifs, ands, or buts. As in Las Vegas, I was only interested in playing the game for the long haul and not in making a fast buck. To survive for any length of time at a hedge fund, I would need a method that tilted the odds demonstrably in my favour. To accomplish that, I would not only need to gain a deep understanding of the mortgage market, but also develop a disciplined trading strategy as well as a method for managing risk. I didn’t know it then, but I was searching for the holy grail of investing. After spending seven long and painful years developing an investment methodology, I began managing money only to find myself at odds with the rest of the industry.Working at a hedge fund meant being in a constant state of alert. The interests of my opponents — the markets, the dealers, and sometimes even my bosses — were rarely aligned with mine. These forces repeatedly tried to derail my plan, which was simply to play the game well and beat the market, over and over. I understood that I needed to make money to prove that I was indeed beating the market. However, I felt that beating the house on a twenty-five-dollar table was enough. I didn’t feel the need to move up to a hundred-dollar table. Moreover, I was never in a rush. I knew that the odds were in my favour and the longer I played the game, the greater the likelihood that I would come out ahead. Hedge fund owners, on the other hand, were focused on making as much money as possible and as quickly as possible, an objective that was often at cross purposes with mine.A relentless thirst for money led to financial institutions taking too much risk and placing bets that were much too large for their bankrolls. Just before its demise in 2008, Lehman Brothers had accumulated $786 billion worth of assets against a stockholder equity of just $25 billion, making the company’s leverage an astronomical 31.Leverage, however, is a double-edged sword, increasing returns on one hand and reducing the margin for error on the other. The history of hedge funds is littered with bodies of those who borrowed too much and invested in a strategy gone awry. During my sellside years, many would blow up right in front of my eyes. I was determined to avoid their fate at all cost.It is for this reason that my bets have always been too small for my bankroll, a fact that has continually irked my superiors.“You have the highest hit ratio of anyone in PFG. And yet, everyone else here makes more money than you.”At the time, in fall of 2004, I was managing money at a hedge fund unit inside the largest of Swiss banks. For the past five years, I had focused solely on my performance and paid no attention to the goings on around me. This comment from my boss, however, forced me to take a look at how all of this money was being made. I would be horrified by what I discovered.It had taken five years, but my eyes had finally been opened to the reality of UBS’s profits, leaving no doubt that the Swiss bank was headed for disaster. I watched in dismay as traders around me recklessly added to their positions, thereby exposing the bank to greater and greater peril. The music played and everyone danced, with no thought or concern for how the party was going to end. Short-term profits ruled the day, long-term risk be damned. I didn’t share in their greed and I was equally determined not to share in their downfall.I fled from the Titanic shortly thereafter, in March 2005. At the time, I had no idea that this phenomenon would spread across the entire financial industry. In the five years leading up to the financial crisis, it appeared as if all of Wall Street had lost its mind. There was an explosion in the balance sheets of major financial institutions as they hunted for short-term profits, no matter the long-term cost. UBS’s balance sheet had grown from 1.2 trillion Swiss francs in 2002 to 2.7 trillion in 2007, dwarfing Switzerland’s GDP, which averaged half a trillion francs during the same period. Citigroup, the US banking behemoth, doubled its asset base, from $1.1 trillion in 2002 to $2.2 trillion in 2007. In an interview with the Financial Times, the firm’s CEO, Chuck Prince, famously summarized the prevailing atmosphere: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”The music stopped on 15 September 2008 when Lehman Brothers filed for the largest bankruptcy in US history. Only a taxpayer-funded bailout would prevent the names of Citigroup and UBS (and that of most other major financial institutions) from being consigned to the pages of history.Amidst all this madness, I have somehow managed to consistently play the game with an eye towards minimizing my chance of ruin, and not maximizing my pay. I had suffered innumerable losing streaks in Las Vegas, enough to know the importance of sizing my bets appropriately. This was a lesson some – like my friend Ajay – would learn the hard way.Ajay had mistaken luck for skill and he wasn’t ready, either psychologically or financially, to deal with the increased volatility of a higher-limit table. The inevitable reversal of fortune exposed not only his woefully inadequate bankroll, but also his fragile mental state. In no time he had lost his entire stash along with all of his confidence. A shell-shocked Ajay staggered out of the casino and got into his car, a daunting two-hundred-mile drive ahead of him. As he made his way down the busy Reno strip, replaying the events of the afternoon over and over in his head, he failed to pay attention to the traffic. Ajay was jolted back to reality when he discovered that he had rear ended a police car that was stopped at a red light right in front of him. A visibly angry officer jumped out of his cruiser, gun in hand, and yanked a horrified Ajay out of his car. The officer bent him over the hood and handcuffed him, believing that my friend must have been drunk or high to drive in such a reckless manner.”Wall Street’s reckless behaviour would cause the entire financial industry to crash in 2008. Instead of handcuffing the culprits, however, those responsible for policing the financial industry bestowed hundreds of billions of dollars upon the perpetrators.My careful approach to managing money would face widespread opposition, but it would win out in the end.Even after accounting for the losses from my Lehman liquidation, 2007 and 2008 proved to be my best years yet, with annualized gains of 17.3 percent and 15.6 percent respectively (before fees). That performance stood in sharp contrast to the rest of the investors in the mortgage market, most of whom suffered devastating losses in the financial crisis.

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Kamal Gupta
 earned an undergraduate degree in electrical engineering from the Indian Institute of Technology in New Delhi — entering the elite institution after only completing eleventh grade — and received a master’s in computer science from the University of Wisconsin-Madison in just 11 months. Bored in the tech world, he turned himself into a professional blackjack player. An unexpected turn of events brought him to Wall Street, where for over two decades he beat the odds in every imaginable way. Gupta lives in the greater New York City area with his family.

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Learn more about Kamal Gupta’s astonishing memoir Play It Right: The Remarkable Story of a Gambler Who Beat the Odds on Wall Street. And click here for more Under the Cover.