Trading With The Enemy (Nicholas Maier) 1 comments

It is my belief that an investor must have an idea of how the investment industry (buy-side institutions, sell-side brokers etc) operates before he can shape his own ideas about how he should invest and whose opinions he should listen to.

Trading With The Enemy is the author's account of his financially rewarding but emotionally harrowing time at Jim Cramer's hedge fund, where he worked for five years in the mid-1990s. Jim Cramer, for the uninitiated, was a well-known and successful fund manager on Wall Street in the 1990s before he moved on to work as a commentator on a financial portal, thestreet.com, that he founded (which IPOed big-time during the dot-com boom at the end of the 1990s). That portal, incidentally, is still surviving today (thestreet.com).

More than anything else, the book illustrates the pressures that a hedge-fund manager faces. The author portrays Jim Cramer as a volatile personality who can be charming at the best of times but when things turn against him in the market, he smashes phones and computers (his secretary keeps a backup store of phones for these occasions), and reduces his staff to tears (the author grew to dread going to the office towards the end). For an industry which increasingly focuses not just on long-term returns but also now on short-term (say quarterly or even monthly) performance, the pressure to outperform is tremendous. No wonder, also, that Jim Cramer, for all his temper, never fails to treat his biggest investors courteously.

One also reads about certain trading strategies that are employed by these institutions. For Cramer, the key to achieving consistent daily returns is to have a competitive advantage to costs and information. Since his fund trades actively and has reasonable scale, whichever broker gets his business would have access to excellent commissions. Hence Jim Cramer plays them off against each other to get the best rates and also the earliest access to broker reports (which stocks are going to be upgraded, downgraded etc). When the upgraded stock has its inevitable run once the report is made public, he can unload it onto strong buying interest. Simple, but the small investor has to think twice before buying on broker upgrades next time, since he might be taking over from early birds who have already caught the worm; and furthermore, brokers are not working for the public, but for their biggest clients. Thus, one has to be selective in adopting such opinions and employ a degree of independent thinking and judgment.

The book is a page-turner due to its good pacing, numerous anecdotes, and acute description of the various characters, not just Jim Cramer but also the various staff who are terrorised under his watch. But it is a subjective account, as it is for most such "personal experience" books. The author parted with Jim Cramer on bad terms, so the tendency might have been to exaggerate things a little on the part of Jim Cramer.

All in all, a very readable book (at just over 200 pages) for an inside look at the operations of a hedge fund. Check it out on the NLB Catalogue.