Wall Street Interview

Years ago, a successful friend of mine was telling me stories about his early Wall Street interviews with a big-name investing house.   One stood out to me.   The question:

If you had to invest $1,000,000 for a client, and your had only two choices, which would you choose?   (A) “Invest” the whole $1,000,000 on red or black at the roulette wheel.  (B) “Invest” on red or black $1000 at a time, one thousand times.

My friend said he knew the right answer, to that question and most of the others.  I believe he was offered this particular job, but declined it in lieu of better offers elsewhere.  Anyhow, he asked what my answer would be.

I said (B).  If single zero roulette, the client can expect to lose on 1/37 (about 2.7%);  if double zero, 2/38 or about 5.3%.   My friend said, sorry, wrong answer.  If you lose money for a high-net-worth client, even 2.7%, they are likely to be disappointed and take their business elsewhere.  If you double their money, a roughly 50/50 proposition, you will have an ecstatic client who will stick their $2,000,000 with you for years.  If you lose their whole $1,000,000 they will be disappointed and walk away, but “them’s the breaks.”

This story resonates with me to this day.  This is an absurd question from a financial standpoint, but it is a powerful question on ethics.  The business rationale behind answer (A) is valid.  However, I chose to work for a company where the correct answer is (B).