Liar's poker or honest rewards?

Published in The Sunday Times on 2^nd August 2025.

I got a chance to see Michael Lewis at the Dalkey book festival recently. It was a treat, as he happily spoke about my favourite of his many books, Liar's Poker. 

Liar’s Poker is his insider account of his time as a young bond salesman at Salomon Brothers in the 1980’s. He portrayed Wall Street as a casino for bright young people who moved money around but created little of real value. It exposed the reckless culture, massive profits, and the absurdity of a financial system that rewards speculation over real economic contribution. 

These bright minds, Lewis argued, could serve society better solving tangible problems in fields such as science, medicine, or engineering. It wasn’t the first time I had heard him bemoan the fact that the book, which became a cult classic inside Wall Street, ironically attracted people to finance. 

I consider it slightly disingenuous to think it would repel graduates from Wall Street. I read it in early part of the noughties – when I was already working in finance – and I was far from put off. That may say more about me than it does about him, but the fact it continues to sell thirty to forty thousand copies a year, 36 years on since original publication, shows its timeless appeal.   

Finance has become detached from its original economic purpose

Lewis was not wrong in his portrayal of the goings-on on Wall Street. A chaotic playground for greedy, arrogant, young traders, who made huge sums playing risky games with other people’s money. A culture of excess, cynical deal-making, and misaligned incentives brought to life fictional characters, like Bud Fox and Gordon Gekko from Oliver Stone’s 1987 classic, Wall Street.

Prominent British economist, John Kay, has long argued that too much of modern finance is detached from its true economic purpose. Only a tiny fraction of financial market activity is focused on its original purpose of matching savers and investors, or managing risk. The vast majority of activity involves participants trading with each other, mostly profiting insiders, whilst delivering little benefit to the real economy. 

Kay describes walking through London’s financial district and asking himself what all these thousands of people are actually doing all day. Observing that most are trading with each other — swapping existing assets back and forth — generating profit for themselves, but delivering little direct benefit to the wider economy.

Lewis and Kay have a point. But I do think that finance is a soft target for cynicism. Its winners are visibly wealthy, and its mistakes can devastate economies — yet its utility is often hidden in the background. The useful core — funding growth, managing risk, price discovery and liquidity, and growing household wealth — is real and vital. 

The stock market is not a casino

There are corners of finance that have casino-like aspects — but the “roulette wheel” metaphor overlooks the fact that over the long run, financial markets are a powerful engine for wealth creation and economic progress. The real purpose of financial markets is in funding the future.

To return to Lewis’ point - there are lots of tangible problems in medicine, science and engineering that finance has a role in helping to solve. But we need a better understanding of how financial markets work. 

If you want a greener grid, a cure for cancer, or clean water for millions, you don’t just need scientists and engineers — you need investors and markets that know how to fund ideas and share risks that are too big or complex for governments or banks to fund alone.

We need to better understand how financial markets work

Markets price risk and allocate capital based on signals – prices, returns and risk premia – this is the information that tells investors where capital should flow. Putting a price on carbon isn’t just an abstract idea — it changes the risk–reward for investors, steering trillions away from fossil fuels into clean technology.

In much the same way, the average investor can allocate capital based upon signals – prices, returns and premia. The stock markets are risky in the short run — but they pay you for taking that risk. There is a risk premium: an extra return investors earn for putting money into equities instead of leaving it in cash or low-yield savings.

This risk premium isn’t random gambling — it’s the rational price society pays people to part with their money today without the certainty of return.

When you buy shares in an index fund, you’re not just “playing craps.” You’re lending your capital to hundreds of real companies solving real problems: developing life-saving drugs, designing EVs, or expanding AI infrastructure.

The stock market is a little like poker, but definitely not like roulette

Over time, the stock market has delivered strong returns because investors get paid for taking risks that fund growth — that’s the reward for tolerating volatility along the way.

If you panic when prices fall, you lose the long-term premium. If you jump in and out based on noise, you turn investing into the casino. The stock market rewards patience. To Michael Lewis’ credit, it is more like poker than it is roulette. But poker is a zero-sum game. The stock market on the other hand has richly rewarded all its long-term participants.
 

Source: Data is sourced from Bloomberg as at market close 31st December, returns are based on total indices in local currency terms, unless otherwise stated.

Gary Connolly is Investment Director at Davy. He can be contacted at gary.connolly@davy.ie or on X at @gconno1.