Hedgehogging (Barton Biggs) 1 comments

Those who pay attention to Wall Street will know Barton Biggs, the author. He has been a partner at Morgan Stanley since the early 1970s, was the firm's first research director, and was head of its investment management arm since the mid-1970s. His last post was as chief global strategist to the firm before he left to start a hedge fund, Traxis Partners --- the largest new hedge fund of 2003.

This is the ultimate insiders' book on the workings of Wall Street at the highest level, and I wonder why and how he managed the time to write it --- probably to leave a legacy, since he obviously doesn't need the money. As the title suggests, it's a book about hedge funds and the people who populate them -- "hedgehogs".

In fact, probably only the first one-third of the book is about Barton Biggs' journey in setting up his hedge fund and his various travails --- the initial decision to take the leap, the networking, and above all the gruelling journey to secure investors --- institutional investors, wealthy individuals, where he illustrates how difficult it is to achieve a critical mass in the fund as well as the startling dropout rate. Outsiders think it is so glamourous to run a hedge fund.... and so do those on Wall Street as well, which is why top analysts, institutional salesmen, mutual fund managers quit to start up hedge funds, only to find that it is difficult to maintain performance with minimum volatility --- in other words, to achieve alpha, the excess return above corresponding risk levels. Biggs also describes a particular episode where his hedge fund shorted oil and saw it go up over several months when he and his partners were unable to sleep well .... eerily reminiscent of the experiences of CAO and their disaster with oil futures.

Frankly there is no definite structure to the book, more like a collection of articles expressing the author's views on various issues with fund management, as well as encounters with various industry professionals and their range of investing/trading styles. A lot of it is not even to do with hedge funds, just about investment management in general. It has nevertheless been a riveting read for me.... I devoured its ~300 pages in about 2 days. What makes it a great book are:
(1) Barton Biggs' lucid writing style and ability to draw on examples and quotes across various fields .... an immensely well-read man, and a visile just as I am (a visile absorbs information through the eyes by reading, as opposed to an audile who ingests information through the ears ie. talking and social interaction).
(2) His range of experiences with fund managers in the investment industry. Hedge fund managers, mutual fund managers, endowment fund managers, wealthy individuals ---he's seen them all in his 4-5 decades on Wall Street, most of them highly successful. He describes his experiences with them, and it is striking how various individuals have succeeded with different styles --- contrarian, momentum, alternative investments (gold, art) --- but all passionate about the profession, and all terribly disciplined
(3) His views matter. He was Morgan Stanley's ultimate big-picture man, as global strategist, and one pays attention when he talks about the differences between value and growth investing (he's an agnostic... he switches between one and the other), investment decision-making (decision by committee stinks.... one man has to make the call), the violence of secular market cycles (he's seen it all, the man --- the 1970s inflation, the 1980-2000 boom years, the Internet bubble, then bear market in 2001-03), the problems of managing big funds (one becomes a people/infrastructure manager, rather than a true investor).

Read it as a chicken soup for the investor's soul. It will be terribly readable and intellectually rewarding for investment aficionados. It's also extremely updated, having been only recently published in 2006.