Book Review: The Hour Between Dog and Wolf…

Title: The Hour Between Dog and Wolf: Risk-Taking, Gut Feelings and the Biology of Boom and Bust

Authors: John Coates.

Publisher: Fourth Estate, Great Britain(May 2012)

ISIN: 9780007413515

Pages: 288

Price: Hard cover Rs.2176, Kindle edition Rs.730

Reviewed by: Jainendra Shandilya, CFA

If this book has to be described in one sentence, this is an action thriller portraying the facts and fantasies surrounding the lives and times of traders in a typical Wall Street firm engaged in high volume trade. John Coates is neuroscientist and a former Wall Street trader with Goldman Sachs, Merrill Lynch and Deutsche Bank. Through this book the author narrates a live tale of what happens to a typical trader during a bull market, bear market, uncertain market and what separates a winner- aka hero from the rest.

The book highlights the role that the various hormones such as cortisol, adrenalin, oestrogens, testosterone, etc. that play in a trader’s life. These hormones, says the author, are responsible for the winning and losing streaks, persistent pattern in a traders bet and mood swings during a day. The book elaborates how the body of an Arb (Arbitrage) trader prepares just before a crisis or during extreme stress, how the liver increases the supply of glucose to body, how the excess testosterone makes one feel more in control. The winner effect among many traders is the result of their biology are among the many interesting things that have all been explained very much in details with scientific citations. The author has brought out his own research conducted on traders with the help of biological tools and statistics. The trading room has been described as an actual war like situation where there are periods of boredom followed by excitements. There are occasions when body reacts first and then the same feelings are echoed by brain and how this feedback mechanism works in a human’s body to prepare a trader before an uncertain outcome the result of which are felt like tremors inside the trading room. The heroes or the characters inside the author’s magnum opus show a fervent desire to beat market, to improve the P&L of the firm and accordingly to ensure good year-end bonuses, partly to buy a beach house in Hamptons and partly to have holiday with their girlfriends in vacation! One of the very strange ways of identifying a good speculator from the bad ones is the ratio of the sizes of the index finger to the ring finger, shortly called, 2D/4D ratio by the author. According to him this ratio is a great indicator of the level of testosterone in a male and hence the proxy for success in the trading room.

Thrillers apart, the book never loses steam of market pragmatism. How the managers behave when faced with the situations of layoff? How the spread trade works? How the digestive system changes during period of high stress caused by uncertainties of markets. In many ways, men behave like monkeys in crisis of depression, loss, anxiety etc.

Towards the end of the book the author argues for a more balanced mix of gender in the trading room, more broadly diversified age profiles of the traders, the criteria for bonus to be based on longer period of return cycles to mitigate the effect of the too much volatilities and predations that markets witness some of the times – which according to the author is nothing but biology of a trader getting the better of him and such outlets(call it a loss on trading floor) in a way is the price that society pays for having people with high testosterone levels, who would otherwise engage in more nefarious crimes! The book was adjudged the FT and Goldman Sachs best business book of the year 2012.

–        J S