Playing for Money

Quarterly Reports

Personal computers are these large, expensive things you may or may not need that are built essentially like toasters. They come typically in one- and two-slice varieties, except that instead of inserting Wonder Bread into their slots, you insert floppy disks. And instead of toasting the disks, the computer "reads" them.

The real miracle in all this, as I understand it, is not the computer, which is, as I say, just a fancy toaster, but the disks. A floppy disk can turn a toaster into a word processor or a flight simulator or a spread sheet (be it the premium spread or a lesser variety) or even a game to teach you about the stock market, futures or interest rates.

This all comes to mind because I can't find my Monty Plays Scrabble disk, which is the floppy I always reach for when I should be writing something serious. This column was to be titled "Anomalies in the Yield Curve: How You Can Profit from Money Supply Trend Simulation."

That I can't find Monty leads me to think I must have thrown him out amidst my last bout of procrastination or else that I scrunched him into a ball in frustration over some of the ... "words" ... he uses. I've always felt--The Official Scrabble Players Dictionary be damned--that words people use, like pecs and----, are words, and that words no one has ever heard of, like ae and aas, which Monty approves, are not.

You say, how the----does this guy, who is supposed to be sifting the financial dung heap for insights to help build our financial pecs, find time to play Monty in Scrabble?

The real question is how Warren Buffett, renowned chairman of Berkshire Hathaway, whose stock reached $2530 a share recently (up from $19), finds time to play Monty. Most of the stories you read about Buffett don't include this. They talk about his part in the Capitol Cities take-over of ABC or the brilliant deal he cut with American Express to share a piece of Fireman's Fund business now that the insurance-underwriting cycle has turned. They talk about his controlling large chunks of the Washington Post Company, Time, Inc., and R. J. Reynolds from his tiny office in Omaha. But here is a man of such flexibility he is able to stoop, on occasion, even to my level of play.

He writes: "P.S. Monty rejected 'haji' the other day, and I felt an emotional high as I overruled him."

A master strategist, Buffett reports that, having taken up the game in 1983, he has learned to manipulate his machine so that, "with a half dozen or so tries, I can get the letters for Wearers to open the game (with Monty selecting the tiles)."

How he gets Monty to be so generous defies me--Monty always gives me opening hands like OOIEUB--but Buffett "places this to get 72 points by having the S end on the center square, rather than 78 points by having the W on the double letter."

A six-point sacrifice. But wait.

"In this manner, with the next S I get, I can go up or down along the left side and create Swearers as a triple word along with the triple that occurs vertically."

Using this opening gambit, he managed a score of 626. And you wonder how Berkshire Hathaway stock climbed from $19 to $2530?

•

I own five fancy toasters, having several years ago gotten rid of my Qyx Intelligent Typewriter.

The Qyx was a magnificent machine for its time. It came attached to an Exxon Office Systems repairperson for whom I briefly thought of building a small guest room. "Exxon--whoooof! Let's see how giant IBM does competing with a real giant, for a change, hey?" IBM managed. Exxon went back to energy. My Qyx joined a clatter of other Qyxes at a Qyx farm in Boston.

In its place I bought an Apple Three ("Apple ///," as Apple had it then, which may have been part of the marketing problem), on which I write these very words. My Apple's never been sick a day in its life, fits ergonomically on my desk and allows use of a superior word-processing program, Apple Writer ///--all of which you would be crazy to buy, because no one else did. It's just me and maybe 200,000 other loyalists, stranded in an IBM-compatible world.

So I also bought an IBM At, (continued on page 150) Playing for Money (continued from page 119) the first line of personal computers IBM has ever named after me, which puts my computing capacity on a par with that of the entire nation of Albania; and a PC- jr, because it would give my mother a way to run a program I'd had a hand in designing. Every time she tries to stick an audio cassette into the disk drive, I am reminded that computers are not for everyone, talented and sophisticated though they may be.

Then there is the second Apple ///, bought more or less by accident, because at $800 with a monitor and 256K, brand-new, I lost my head; and a MacIntosh on which even I can now draw a straight line. I use it to compose form letters to my foster children. I have several of them (you should, too: Foster Parents Plan, 155 Plan Way, Warwick, Rhode Island 02887, $22 per month per kid), and when they send me crayon drawings of the family cow, I send them personalized, happy-face stock and bond certificates.

With my Mac, I can also play Championship Boxing, by Dave and Barry Murray. A far less violent variant of the real thing, it allows me to pair any of 57 real-life fighters (or create one of my own), vary their weights, heights, knockout records, training schedules and fighting styles, and then watch them have at it. Knowing nothing about boxing, I take Ray "Boom-Boom" Mancini, add 24 inches to his reach and watch him knock the crap out of Joe Frazier. Reason enough to own a personal computer.

But enough kid's stuff. Bring on the financial simulations. If pilots can learn their moves in computerized capsules on the ground, surely we can sharpen our trading skills with play money.

• Wizard of Wall Street, by Synapse Software ($44.95), features a bunch of made-up stocks--"Federated Titanium"--that tick across a tape at the top of the screen. There is a scoreboard of your current positions and gain or loss; news reports flash every few seconds (although they do begin to repeat after a while); you can purchase research reports on each stock at $100 each; you can sell short, buy options, buy on margin, avail yourself of colorful graphs--you get the picture. Start yourself off with $50,000 and plunge right in.

The game's research reports are out of date and unreliable, its earnings estimates are all but worthless. Even where the analyses do prove reasonably accurate, it's all but impossible to gauge whether their predictions have already been discounted by the market and, thus, whether the stocks in question will go up, down or sideways. The game is, in other words, remarkably true to life. I had fun playing it.

• Wall Street, from OCO Software at $69.95, goes a step further. It uses real stocks (20 from the New York Stock Exchange, ten from the American), half a year's real price fluctuations and news headlines, impressive color graphics and the chance to learn the mechanics of the market and to double your fictional dollars. Its big plus, though, is that for every $5000 in profits you amass, you get to kill off one of the specialists on the floor of the exchange.

• If you'd prefer to learn about the futures markets and kill off pit brokers instead, try Speculator, at the same price and quality level, from the same publisher. The game's big drawback is that you might like it enough, and become familiar enough with futures trading, to want to play for real. This would be a mistake.

• Manipulation is less ambitious. The idea, simply, is to buy and sell another group of made-up stocks, but with the advantage of inside information. That could be pretty fascinating if you had to judge whether or not the inside information were accurate and whether, if accurate, it had already been discounted by the market and, if not, which way it would drive prices when revealed. These are the three challenges, other than avoiding jail, of profiting from inside information. The game could have come loaded with nuggets like "Your brother-in-law, who is a renowned flake but who does share a cab to work each day with a paralegal from one of the biggest mergers-and-acquisitions law firms, swears the paralegal, who'd had only two hours' sleep the night before, a sure sign of an impending tender, nodded off in the cab this morning and kept mumbling 'Federated Department Stores' in his sleep."

Your job would then be to decide how much, if anything, to bet on Federated Department Stores; whether to bet it would go up or down (if it were acquiring somebody else, it could well go down); how much you could safely buy without attracting the attention of the Securities and Exchange Commission in case Federated actually did shoot up 30 points seconds after you bought it; and how likely it would be, if you attracted SEC attention, that you would be deemed an "insider" by virtue of your wife's brother's cabmate's sleep talking.

You could have a variety of trading accounts, each harder to trace than the last, but with the hardest to trace, like a Swiss account owned by one of your Bahamian corporations, being the most expensive to trade through. And since the name of the game is Manipulation, you could do a lot of buying and selling of the same security among your various accounts to create the impression of great activity--a classic manipulator's ploy--in hope of drawing other players into the game and selling out to them at a profit.

It could, in other words, be a harmless but intriguing outlet for the white-collar criminal in all of us.

But no. At $29.95 a copy, Manipulation simply tells you during each round of trading where each of its fictional stocks will be during the next round. That's all there is to it. The "challenge," if you will, comes in remembering the current prices ("just as a professional stock trader must remember the last traded price of a stock," the package explains), so you know whether a stock headed for 62-5/8 will have gone up or down. Please.

• One game that puts this all together, albeit with certain rigid assumptions (eight percent inflation), is Blue Chip's Squire, the Financial Planning Simulation ($49.95). You tell it your assets, goals and monthly income available for investment; it leads you through 20 years of living in a couple of hours, allowing you any sorts of half-baked investments you like (porcelain? cattle-feeding schemes?) and throwing a humorous curve or two along the way. Whether this sort of thing really compares with a hot game of Monopoly or the 20 video tapes you could rent for the same money is a question only you, Mr. Consumer himself, can answer.

We could go on. Blue Chip also publishes games called Baron, for the budding real-estate mogul, Millionaire (stocks) and Tycoon (commodities). You could quickly rack up quite a bill buying all these--and I'm certainly not recommending that you do. On the other hand, to the extent that you do, it will be the most modest loss you're ever likely to take fooling around with stocks, commodities or real estate.

• If you want to lay out some real bucks, try $600 for Interest Rate Clairvoyance, released in late 1985 by Strategic Economic Decisions of Menlo Park, California. For this you get two disks that attempt to make you expert at understanding current interest rates and glimpsing their future. As interest rates underlie all movements in the stock and bond markets--when rates go up, stocks and bonds go down, and vice versa--the ability to predict them with any consistency could, with appropriate leverage, make you rich beyond imagining. Fast!

It is not the claim of the designers of Clairvoyance that you will be able to do this. Indeed, they are not, at this stage, anyway, and at this price, even trying to sell it to you. They're shooting for the pension-fund managers, corporate treasurers and other multimegamillion-dollar players for whom (A) $600 is nothing and (B) a tiny improvement in performance--sensing a trend a day or a week earlier than they otherwise might have--could pay for the program 1000 or even 10,000 times over. So this package is not a game at all.

The first disk is an "interactive tutorial" on the subject of interest rates. Interactive tutorial means it's like a lengthy textbook chapter, only you have to press a key to summon every few paragraphs, are called upon to answer an occasional true-or-false or multiple-choice question and, where there are graphs, get to see the lines on the graph move. The net result of all this is a way to help you better understand that there is a single global market (new in the past few years, as international capital flows have become constant, computerized affairs) and that the price of credit--interest rates--depends on supply and demand.

Every new factor--an increase in the deficit, for example--should be analyzed in terms of its impact on the supply of credit (high deficits scare off lenders, so supply shrinks) and the demand for credit (to fund the deficit, the Government borrows, so demand rises). When the supply of lendable funds shrinks and the demand for loans rises, credit becomes more expensive. Interest rates rise until enough potential lenders are enticed to lend and enough potential borrowers decide, "Screw it, it's just too expensive." At that magic interest rate, supply and demand cross like lovers on a double bed, and the market "clears." It can get a lot steamier than this simple example, because at least ten factors are interwoven in their impact on the supply of and the demand for credit. What's more, these factors must be accorded various weights. But that's where the second disk comes in.

The second disk allows you to vary as many as five of the ten factors--the deficit, the strength of the dollar, G.N.P., et al.-- and almost instantly see the effect on interest rates for six months into the future. Not only will you see the little supply and demand lines move on the graph, intersecting at some new orgasmic interest rate, you will be given some explanation as to why the rate has changed as it has.

That this is pretty nifty, at least for the econ grad students and bank chairmen in the crowd, it is hard to deny. A very real question, though, is whether use of Clairvoyance will improve its users' performance even a tiny bit. One of the reasons to think it conceivably might-- although there's also reason to think that no manner of analysis can predict the course of interest rates with above-average consistency--is the academic credentials of its creator, Horace "Woody" Brock. Brock holds five degrees from Harvard and Princeton. He has lectured at Harvard, Princeton and Stanford, has been a senior member of the Stanford Research Institute and has for the past half decade consulted with IBM, Morgan Stanley and the United Nations, among others, on the direction of interest rates.

My own guess is that he's just as likely to be wrong in his predictions as you or me, only, as they say, for far more sophisticated reasons. But maybe not. This past November, I caught him at a pay phone, waiting for his plane from the Federal Reserve, in Washington, to the Fidelity and Putnam groups of funds, in Boston. I asked him where the prime rate, then nine and a half percent, would be March first and November first, 1986. (By the time you read this, you'll be able to judge at least one of his answers.)

"What is it now?" he asked. (The real interest-rate players pay little heed to the prime. It's the Treasury-bill rate and Libor and all those more sensitive things that matter in the money markets.)

"Nine and a half percent," I reminded him.

"Well, then," he said, "the most likely scenario might put the prime at nine percent in March and nine and a half percent--I'm almost tempted to say nine--in November." Conditions will be different from what they were in November 1985, he says, but the supply/demand credit tug of war he sees still pretty much stalemated.

From my own greatly less sophisticated reading of the markets--which is to say, in my case, The Wall Street Journal--I'd guess he's about right. In the meantime, I'd rather be playing Scrabble.

"I take Ray Mancini, add 24 inches to his reach and watch him knock the crap out of Joe Frazier."