Customer Reviews

Hedgehogging

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4 star:		(26)
3 star:		(9)
2 star:		(6)
1 star:		(11)

 

 

I previously worked in the hedge-fund industry and now teach college students about finance. Therefore, I found Barton Biggs' anecdotes both instructive and amusing, having seen some of the poor lifestyle choices that some hedge fund managers ("hedgehogs", according to Byron) make.

However, the book's strength is not an "inside look" into the world of hedgehogs, but a series of instructive vignettes about how to be an "investor". According to Biggs, a true investor sees one step ahead, while the rest of us are responding to the "now".

The true investor pays a high price for this insight. A true investor makes mistakes, is inevitably early, has doubts, lives in a lonely world, and is abandoned at precisely the wrong time by his most loyal investors. Sleepless nights, grinding teeth, and poor digestion are just part of the price paid. (I certainly can attest to this, though I would never claim to be a true investor. I guess that I am just a "journeyman".)

The goal of people with money to invest is to find these true investors, give them their money, watch them closely, and stick with them through thick and thin. One must constantly watch, though, for the weaknesses that often come with success.

In the first half of the book, Byron provides many instructive stories, centered on his town of Greenwich, of successful hedgehogs who let their money determine their lifestyles. Inevitably, pride comes before the fall, destroying both lifestyles and businesses.

I strongly recommend this book, not as an investment guide, but as an "investor guide" -- a guide on how to be a successful investor or how to find successful investors to work for you. This book fills an critical hole in my library.

Addendum January 8, 2006: I've spoken to a few friends in the business who are quite angry about the passages in the book concerning the Breakers meeting that is sponsored by Morgan Stanley. I, too, felt that Biggs' comments were unwarranted, but they did not detract from the book for me. There are many in the hedge fund community who feel that Biggs owes them an apology. I agree.

If you own stocks, love stocks, must have stocks, than this is the book for you. Barton Biggs has spent his entire life in the markets and has influenced some of the biggest names in the business. He's forgotten more than most of the premiere hedge fund managers operating today will ever know. I know because I know this business.

Having spent 35 years in the industry, and I still love it every day, I have nothing but respect and admiration for this man who spent most of his career at Morgan Stanley. He was actually the lead man in putting together the Morgan Stanley research department. This is a major feat by itself. By whatever matrix you want to compare this man, you will find him on every winner's list.

I have run into him at several conferences, and I have never failed to be impressed by his massive intellect, which can focus like a laser on individual stocks, sectors, commodities or equities, and a whole array of economic issues.

He is a first rate thinker, and a first rate analyst. He's just basically smarter than his peers, and he has decades of experience to couple that brainpower with. In this book you have the opportunity to take in about 300 pages of pure wisdom. How else are you going to be able to do this, and from who?

Every couple of years I try to retool. It helps me remain humble. This can be done in a number of ways. You can take a stack of books like this one, tuck them under your arm and get away to a retreat or a beach somewhere, and just start taking in the knowledge, and try to integrate it.

Back at the height of the Internet Boom when I couldn't understand the valuations being given to hundreds of companies with no earnings, I decided to retool. It wasn't that I just couldn't understand the lack of earnings. I couldn't even find companies that had a hint of an earnings stream. It was suppose to be the new economy. The old methods of valuation were thrown out the window. If you didn't conform, you were mocked, antiquated, a dinosaur.

One of the so-called dotcoms we looked at had a valuation greater than the combined valuations of 10 massive, old-line industrial companies that we followed and respected. I ran up to Harvard, which I have done a number of times to see what the academics were thinking. I sat in a classroom with a brilliant professor, who then began to pontificate on why this specific dotcom was worth the price the stock was selling at. I looked at him, and instantly knew he OWNED THE STOCK. Ownership is always a surefire basis for BIAS.

Now when you read Barton Biggs' Hedgehogging, you will understand precisely the emotional mechanisms that the professor in question suffered from. Biggs covers it on page 29 of his book. It's called Confirmatory Bias. This is the tendency to collect all the information that agrees with your position, and to ignore the information that doesn't.

He even tells you how to fight off Confirmatory Bias, which is something the Professor in question never thought of, or about for that matter. It's interesting to note that the Professor in question lost his shirt along with about 98% of all other investors at the time.

I went back to taking my basket of books and hit the beach in Hawaii. Reading by the shore as the surfers made the morning waves is a great way to try to re-connect with what's going on. If you do decide to go to the beach, Barton Bigg's book would be right up there near the top of the list for your enlightenment. Every page is choked full of wisdom by a man who has paid the price with his own cash for that wisdom.

Are there other books that you should take to the beach with you along with this one? You bet there are. Take Graham and Dodd's Security Analysis. There are several editions. Warren Buffet has read this book probably 15 times from cover to cover in his lifetime. As you know, Benjamin Graham was Buffet's professor at Columbia University.

Edwin Lefevre's Reminiscences of a Stock Operator may be the greatest book ever written about trading. I first read it as a teenager, and I still re-read it every couple of years. It never gets dull, and every time I go through it, I find things I have never seen before. It's that extraordinary. You need to own it, and own the knowledge that's in it as well.

Read Bernard Baruch's "My Own Story". Baruch is to the first fifty years of the 20th century what Warren Buffett is the second half of the century. Both were unequalled investors. Each was the premiere investor of his time.

If you have an institutional bent to you, try David Swensen's book on "Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment Management". Swensen is the man who ran the Yale endowment for the last twenty years, bringing it back from the ash heap of history to being the number one college endowment in performance for the last generation. No mean achievement when you consider he was up against every professional money manager in America.

Let's talk about some of the concepts you are going to learn from Barton Biggs in this wonderful book called Hedgehogging:

· You learn about Robert Wilson, the man who shorted Resorts International and lost $100 million for his efforts. Biggs is polite, he doesn't mention the real names of most of the players. He doesn't want to embarrass anyone, but if you have been in the market long enough, you know who is talking about.

· Morgan Stanley's Breakers Hedge Fund Conference- Biggs is not a professional writer, but his writing is brilliant. In this section he discusses attending a conference of hedge fund participants, and aspiring players. His descriptions of these people by itself is worth reading the whole book. Listen to this sentence, "Former investment bankers exchange distinguished lies with portly ex diplomats, permanently deformed by self-importance." (P 50) He uses language like this throughout the book, and it's a joy to read.

· There's dinner with Fayez Sarofim where Biggs describes a man who is Buffett's equal in brainpower, and the techniques he uses to amass multiple fortunes. "My favorite holding period is forever," says the master.(P70)

· He discusses with his father, a great investor in his own right, entering the brokerage business. The father hands him a copy of Benjamin Graham's Security Analysis, and says, READ IT. Biggs reads it, underlines it, annotates it, and goes back to his father. The father pulls out a new copy and says DO IT AGAIN. This is how you learn, and the information you learn is priceless. P81

· Biggs tells you what to read, "It is better to read The Economist from cover to cover once a week than the Wall street Journal every morning." P108

· The public never learns. Jesse Livermore the greatest trader of the early 20th century said, "Buy Low-Sell High," but Biggs expands upon the theme. "The public instead does just the opposite. It buys high and sells low, partly because the mutual fund industry has an overwhelming incentive to sell what is easy to sell, and what is easy to sell is what has just been hot." P121

· Biggs' description of the secular bear market of 1969 - 1974 (P127) is the best description I have ever read of a history that I lived through. He's got it down pat. He captures the emotionality, the flavor of the times. You feel the heat, the pain, and the agony of not being able to sell, of stocks going down day after day with no volume. Every MBA kid making a million a year in the market right now, and I have hired plenty of them, should be forced to memorize sections of this book, because they are going to pay for their lack of knowledge of history with the market value of their client's accounts.

· He teaches you an understanding of private equity (very big right now, probably getting bigger). He goes into the law of large numbers and why these funds cannot continue to bring in the returns that they have been showing for the last 10 plus years. If you are in the market you need to understand what Biggs is talking about. This is priceless information, and he's giving it to you for the price of a book. P142

· He gives a scholarly presentation of the concept of the Fibonacci's number series, and its impact on the market. It's a brilliant, easy to understand presentation (P163), but even better is his analysis of GROUPTHINK, and its impact on the market.(P169) Professor Irving Janis of the University of Michigan is the father of Groupthink; but his book is out of print. Bigg's analysis of the process is the best thing out there. It will not only help you in the market, but it will help you understand how we got to where we are in Iraq as well.

In the whole book, I only caught one error, and that's because Bigg's knowledge, and his breath of knowledge is so astounding that he relies on memory in most instances to do his writing. When you do this, sometimes you can be faulty in your memory. He simply recalled a book whose author he did not name, as being written by a famous professor at MIT. The book was about the innovator's dilemma. The author was from Harvard, not MIT, and Christensen authored it.

Here's the bottom line. If you could find ten books like this, you would be better off owning the knowledge in them, instead of getting yourself an MBA in finance from any of the top business schools in this country. A book like this is that important, that influential, and that informative. You would have to own the knowledge in this book, not just read it casually. You would need a pen to underline, to take notes, to write in the margins, to make this knowledge yours, and then with some experience, you would become AN INVESTOR. Good luck, and I say that respectfully.


Richard Stoyeck

I have run a hedge fund for over 20 years. There is no book like Hedgehogging, ever, that has captured the pain, pleasure, hubris, foibles and ego of folks who run money. Running a hedge fund is a life and death battle everyday. There might be a thin veneer of "we are all in this together." But when the bell rings, ultimately, you are on your own. It is your decisions that determine whether you survive. In one way or another, it is the same for everyone in markets and life.

Barton has put over 40 years of investment experience into a very amusing and readable book. He brings to life the characters in a brutally honest way. Hedgehogging reminds us that markets are comprised of PEOPLE for all the good and bad.

Whether a novice or professional, there is a lot here that will help folks learn about what really happens in markets and how to deal with them. Hedgehogging gives one insights into the psychological and behavioral aspects of all investors. Barton captures the all of this. After all, Hedgehoggers are just like everyone, only moreso.

Everyone will recognize some part of themselves or folks they know in this terrific book.

This is not a formula. There is no such thing. Barton makes clear that even for the best, everyone makes many errors. Hegdehogging will save people a lot of "tuition" as they learn about markets, investing and themselves from Barton and his cast of characters.

This is must reading for anyone who is in markets or is contemplating it.

This book is a mess. Every ten pages or so, Biggs introduces some (apparently quasi-fictionalized) anecdote about a hedge fund manager (e.g., "last week I had lunch with Stan, who for twenty years ran big money at Morgan Stanley but now manages his own fund . . ." or "a few days ago I had dinner with George, one of the true hedge-fund immortals"). Approximately one half of the book is devoted to these anecdotal portraits of allegedly wildly successful hedge fund types whose true names Biggs has thoughtfully withheld for their protection and ours. Practically none of these anecdotes convey any kind of specific information about the hedge fund business or about the actual mechanics of hedging transactions. The pay-off of each anecdote is something like "it is very stressful to run a hedge fund" or "it can be very depressing when one's portfolio underperforms the indices" or "the markets can be irrational in the short-term." These kinds of passages are interspersed with a lot of random material - for example, some bizarre and pointless fiction, apparently recycled from something Biggs wrote in 1971, about a trader named Jud buying copies of the Wall Street Journal that magically predict stock price movements a day early, as well as a chapter paraphrasing Robert Skidelsky's biography of Keynes (Biggs claims that the chapter on Keynes "is based on a number of sources besides Skidelsky's epic" but characteristically identifies none of these sources, either in the text itself or in the recommended reading section).

Many of the other reviews focus on how "well-written" the book is. Well, it certainly isn't particularly well-written in terms of structure, and as far as style goes, the writing is fairly typical of most middle-brow "investment literature" - very much in the vein of the books that John Rothchild wrote for Peter Lynch (Beating the Street, et al). In other words, the writing is pretty generic.

That wouldn't be such a bad thing if Biggs were actually conveying anything useful, but he comes across as almost pathological in his aversion for conveying specific information. For example, Biggs alludes at length to something pretty well known, Robert Wilson's having lost several million dollars shorting Resorts International stock - but not content to provide Wilson with a pseudonym, he goes out of his way to alter facts about the episode, as described by Andrew Feinberg in his review of the book posted at Kiplinger's site. Why? As Feinberg points out, the whole Resorts International shorting fiasco has already been described elsewhere, without any of the names having been changed to protect the innocent.

Anyway, this book was a waste of time.

One can understand why Biggs chose to give false names to most of the financial industry characters he describes: he remains a player and doubtless doesn't want to discourage other players from talking to him. What is much worse, some of the personalities are composites he constructed and not all the events he recounted are real, by his admission.

The lack of real-life information deprives his vignettes of context, even when one guesses who the person might be. Yet in many cases there would've been little harm in giving more information: the conversations are not particularly novel or controversial; they're about common attitudes and predictions.

And there was absolutely no good reason to insert bits of fiction, as it does not add noticeable drama and merely makes it impossible to find meaning in the anecdotes. One doesn't know what to trust and what lesson to draw.

No doubt Biggs presents a wealth of experience and certainly the book is worth reading to get the views of a long-time Wall Street insider, although he has remarkably little to say about Morgan Stanley, his home for 30 years. Some of the best stories are about his recent experience raising money and dealing with a losing trade for his hedge fund. On those occasions one hears an authentic voice, trenchant and tough.

It is unfortunate that he felt the need to conceal so much from readers. One starts reading with great interest but in the later chapters gets bogged down in bland chestnuts and cover-ups.

Had Biggs dished more truth straight up, the book would've been more compelling. As it stands, one finishes it feeling a bit cheated. Literary hybrids that mix fact and fiction may have their place, but surely that place is not in a book that offers insights into investing--a topic that especially needs straight talk and rarely gets it.

In this book, Mr. Biggs does not discuss the fact that before he left Morgan Stanley he was unmasked as having fabricated comments used in his research reports (claimed to be from his plumber, Ron Valentine) [see NYT, May 21, 2000, Sec 3, p2]. Readers and potential readers of Hedgehogging should, however, remember. It explains the view smart investors have had of Mr. Biggs for some time: he is mildly entertaining, but not someone you should use for serious advice. And above all: never give him any money.

Hedgehogging won't challenge this conclusion for a number of reasons. First, it is about what the author does not say. Nowhere does Mr. Biggs actually detail his hedge fund's strategy or process. His discussion of losses from shorting oil are interesting, but only highlight his lack of thought. Is Mr. Biggs just the public face for Traxis, asking for money for no other reason than he has been around a long time?

It is also about what he does say. Several times Mr. Biggs talks about the "special magic" that it takes to be an investment superstar, most memorably when he talks of the "seeing eye" (p111). This seems to be his core philosophy. Investment success is not made or created, it just happens to those who succeed.

And it is about his actions. In the end, hedge funds can be judged by only one thing: performance. After initial success with Fairfield Partners, Mr. Biggs does not talk about their returns other than that Fairfield "survived the bear market of the 1970s." He left in 1973. We will all see how Traxis does.

Finally, an attempt to put names to pseudonyms. Most do not precisely match Mr. Biggs' "clues," but many of the details may not be true (remember Ron Valentine).
Superstar Ian (p11): J. Kevin Kenny, Jr., Emerging Sovereign Group
Grinning Gilbert (p15): Steven Cohen, SAC (fantasy amalgamated with Zalmon Gilbert Simmons)
Jock Robinson and Casino Resorts (p35): Robert Wilson and Resorts International
Jim the Trigger (p51): Janus alums ala Warren Lammert and Blaine Rollins
Peter the Great (p63): Henry Kravis, KKR
Tim (p96): Nicolas Roditi
The Bearded Prophet of the Apocalypse (p99): Douglas Kass, Seabreeze
Julian's Guy (p104): Tiger Cub cocktail with likes of Chase Coleman, Thomas Facciola
Dave (p133): David Marvin, Marvin & Palmer
Greg from Mega (p192): Leon Cooperman, Omega
Judson Thomas and his special Wall Street Journal (ch20): When first written in 1971, the story was clearly fantasy. But today, it is remarkable how Barton has become Judson. "... a big, beefy middle-aged man, faintly disheveled, his shoes spotted. The face was good - strong, sturdy features arranged honestly - but the eyes had been shot away a long time ago and now there was nobody home a lot of the time... Jud knew all the big names in the game like Kingdon, Cooperman, and Druckenmiller, but they disdained him as a hack."

This book is basically a collection of notes assembled by a successful hedge fund manager. I would like to break the review down into structure and content. Structurally the book is an absolute mess. The book lurches from chapter to chapter in no logical order. Some of the writing is fairly pedestrian. The shifts from prose to diary to prose again can be disconcerting for the reader. The content ranges from the insightful to the ridiculous. Although the author does have flashes of brilliance, he also touts ridiculous concepts such as the contrarian indicator, hot streaks and reversion to the mean. As an example of the ridiculous the author dedicates an entire chapter to a man who allegedly could obtain a "special" edition of the Wall Street Journal which contained future prices. As an example of the random, the author dedicates a chapter to the life of Keynes. I find it difficult to recommend this book to anybody.

I was hoping that this book would be the Liar's Poker of the Hedge Fund world. Instead, it was a big disappointment. Here's why:

1) By and large, the book was a random hodgepodge of anecdotes thrown together. It wasn't one cohesive story. Each chapter was it's own mini-story, or series of dinner conversations. It wasn't a page-turner in the least.

2) I didn't find it all that insightful. Through much of it, I'm thinking, "Gee, I could have made up a story like that"

3)I found the tidbits of advice to be trite and annoying. All of them seemed to come from the "Hindsight is 20-20" point of view. At times, the message was contradictory, pointing out the foibles of people who held on to losers too long, while later extolling the virtues of people who stuck to their guns on unpopular stocks and hit the jackpot. If anything, reading his words made me believe that much more in the virtues of Random Walk Theorists, and weak Efficient Market Theories.

4) While I can't say that it was poorly written, it certainly wasn't that well written either.

To sum up, a rather boring book that didn't teach and didn't entertain.

With the Bear Stearns hedge funds going from 20 billion to zero in a matter of months this is a great book to understand what the hedge fund world is all about. What the book lacks in structure it makes up for in substance and I found it an enlightening read. Part memoir, part investment smarts, it really is a good buy if you enjoy popular finance books. It possibly also may be dissected by historians in decades to come as an insight into the excesses and hubris of early 21st century capitalism if many more triple 'AAA' rated CDOs suddenly becomes worthless and the whole financial system starts falling apart.

You also get a sense from the writing of wall street's disconnect from the 'real' world of business that actually makes things and employs the rest of us. The likes of Buffett and Peter Lynch seem to have a relationship with what companies do. Mr Biggs seems to be in a much more abstract, rarified world where the worshipped idol is the Market wihout a thought for what it represents. Financial voyeurism at it's extreme.

For the ordinary wage earner (of which I am one) it would also be interesting to know what motivates someone like Mr. Biggs who has always been wealthy (and presumably has continued to get wealthier) to want to make more and not instead devote themselves to something else. In other words, what's the point? But maybe wealth is the point.

There's a gentle a swipe at George Soros for creating his foundation so he can leave a better legacy but whatever the motives, many would applaud the spirit of someone who says 'I have enough, I'll do something useful'.

Whatever my criticism, I'll buy his next book - and make him wealthier.

BB offers no meaningful insights into the securities industry. Like all businesses, there are various types, but he never once calls into question the very nature of the activity. As he is still in business, he does not want to offend the pantheon of interests that control OPM (Other People's Money). Among his comments:
1. Long only managers add value - some may. His friends? Who knows. But the vast majority are closet indexers.
2. Hedge Funds add value - this is dubious.
3. Funds of Funds add value - I TRIED to believe this one. But I can't. Not after BB describes his own diversification strategy. Its just another layer of diversification - and hence fees.

He does say that large asset management firms are run along business rather than investment principles. He worked at MSAM for 30 years. THEN he found religion? This is a convenient jailhouse conversion, now that he has a hedge fund.

There are several veiled comments that one is only TRULY successful unless one is worth $500. Ok Barton...I'm not worthy.

I have +10 years in the industry and am very aware of the conflicts of interest and outright crime that occurs on a daily basis. BB papers over all of this with bland platitudes and the help of a good editor.