This quote suits appropriately on every portfolio manager that I have read about. Some years of stardom and when too much of analysis (or paralysis of analysis is a better term :)) goes into it, their portfolio takes a nose dive and their fund is in doldrums. However, this book has an interesting take on fund/ portfolio managers who leverage themselves up to $ 10 trillion (combined!) of banks’ money with little or sometimes no collateral. Come on ….I know what you guys must be thinking that “should I be reading this book.” So, let me start with the interesting part – How did writer, Sebastian Mallaby, choose the title? – when representative “Elijah Cummings, democrat of Maryland, recounted his neighbour’s reaction to the days’ hearing (hearing was on insane profits that some hedge funds had made on shorting stocks of Lehman & bear sterns in 2008). It was not a reproach, an acquisition, nor even an expression of pity. It was a simple question tinged with awe. “how does it feel to be going before 5 folks that have gotten more money than God?” “
Well, this innocent statement given by his neighbour sums it up on what we are discussing in this book. It states history of hedge funds starting from late 1950s right until 2010.
Hedge funds, as described by the writer, find price anomalies and shorts the financial instrument if they feel it is overpriced and go long if they perceive it to be undervalued as compared to the general perception. The writer has given a reasonable explanation and has vouched for the presence of hedge funds in every industry and every region of the world. His general argument has been that hedge funds help in getting prices back to equilibrium (where they should have been !!) and stop bull or bear runs on a particular stock/bonds or currency. In that sense, they help the markets and provide balance that they necessarily need.
I suggest reading this book for all fin wizards – specifically, for those of you who have some background speculating or hedging in commodities, FOREX or bond/equity markets to get a good idea of how much money these hedge funds make or lose at any point of time. Books, like these, that are so knowledgeable and details out industry’s inner workings ,which are historically secretive, speaks volume of reasearch that has gone behind writing this book. It shows the brilliance and perseverance of the writer. Kudos to Sebastian Mallaby for writing this books
One tidbit before I sign off. Famous crooks, fraudsters and Ponzi scheme managers have a mention in this book ( on the sidelines, though :)) but you should read about the great George Soros and his claim to fame. His now famous betting against the Bank of England netted him a profit of $ 1 billion. He went on shorting other countries’ currencies in South East Asia and he was once called a moron by then Prime minister of Malaysia. It just goes on to show that hedge funds have arrived and they are everywhere but no one fund should be allowed to become too big or else doomsday of financial markets is certain. When these big funds fail they create ripples through financial markets around the world and as a result, destroy economies by creating unemployment, dearth of savings, lack of cheap capital and loss of confidence in country governace. Whether you should prefer hedge funds or not – that is for you to decide !! All I can tell you is that Sebastian Mallaby has presented a very compelling argument in favour of hedge funds through his book and I rate it super 4.5/5