If you have to read one book about investing in 2006, read Barton Biggs'
. (I say this even with the knowledge that my next book,
, will come out in March, so if you have to read
Barton Biggs has been there, done that when it comes to investing and "hedgehogging," as he puts it. He started his first hedge fund in the 1960s and had his ups and downs with it. In the 1970s, he started up Morgan Stanley's research department, where he spent the next 30 years of his career. More recently, he left Morgan Stanley to start up his global macro hedge fund, Traxis.
In light of that impressive history, I believed Biggs would have been immune to many of the pressures that I, for one, feel in the hedge fund business:
- the pressure to raise money
performance anxiety, on almost a minute-by-minute basis
the onslaught of advice from and pressure to use the various investing styles that parade across television, magazine covers and conference fliers
And yet, right from the beginning, we see Biggs' enormous pain when his new fund fell right into the red after placing a big macro bet against oil. In the chapter headed "Short Selling Is Not for Sissies," Biggs describes the pain he endured as articles appeared that called him a failure, investors who had followed him for 30 years left and even his daughter Wende started questioning his motives in shorting oil.
As an aside, in college I lived with Wende Biggs and Rick Arons, now of Pokemon card game fame, when we had a debit-card business for college students called CollegeCard. I've been following Barton's writings ever since then -- 1987, actually. I remember visits from Wende's parents; Barton had a stack of reports about three feet high and would spend the entire weekend sitting on the porch, outlining each report with a yellow highlighter.
, his hunger for reading never slowed. And throughout the book, we are treated to a bonus: his analysis of various other books and readings he considers critical to investment success.
Also riveting -- and a relief to this hedgehogger -- was learning from Biggs' detailing of the start-up phase of Traxis, with its road shows and investor presentations, that this is clearly the most distasteful part of the business for him. That's true for most hedge fund managers, but I still caught myself thinking, "Wow! Even Barton Biggs had a hard time raising money."
I also had my one problem with the entire book in this chapter, in his description of some attendees of an investor conference:
Wrecked old Texans with faces like road maps, sour breath, and fitted Hawaiian shirts chatter with fast-talking private wealth bankers from Miami with pompadours and slicked-back hairdos. Retired, vastly rich investors with private jets, homes in three climates, and Botox-smoothed foreheads name-drop and talk about their golf games as their bored wives and sleek and skinny girlfriends, social X-rays suffering from anorexia richiosa, babble about dude ranches and plantations. Wealthy divorcees and widows with artificial brightness in their unpouched eyes and hard, chiseled faces and tucked stomachs and bottoms, work the crowd.
The passage, while exquisitely written, seems to vent blind anger at this group of potential investors. Everybody just wants to be happy, even these people. Why all the hate?
But Biggs can be forgiven for that one lapse, especially considering the valuable anecdotes throughout the book. We are regaled with stories of Biggs' often anonymous friends as they share their experiences from the trenches of the hedge fund war zone. Particularly outstanding are the pension manager who returned 50% but was 500 basis points lower than her benchmark so her compensation was in question; the short-seller who almost lost it all while honeymooning with his young bride as his favorite short moved up 300%; the various superstar investors who dealt with the success of making hundreds of millions of dollars and the despair of succumbing to complacency. And that's not including the stories of John Maynard Keynes, David Swenson, Alfred Jones and other innovators in the history of alternative investing.
Another surprising benefit emerges in
as we watch Biggs, like any investor, grapple with his philosophy of value vs. momentum investing vs. emerging markets vs. technicals. His constant dialogue with friends and colleagues about these different approaches provides a useful summation and analysis of all of these approaches.
But there's one more gem for readers: Biggs' analysis of how the next bull market or even bubble might occur in emerging market equities. In this context, he also describes the approach of one of his successful friends who made a living going long the least-regarded international markets and how he's bullish on Iran, now that Egypt and Africa have become crowded.
reminds me of Bernard Mannes Baruch's
My Own Story
both in terms of its style and the arc of history it presents for students of investing. However, Baruch worked almost entirely for himself his entire career. Biggs' exposition delves far more into what it means to be in the investing
as well as into being an investor, with some insights both insiders and outsiders can profit from. Biggs illustrates something I've learned the hard way: The various personalities and difficulties that you encounter in the hedge fund business have little or nothing to do with your skills and beliefs as an investor. In fact, often the most skilled investors have zero chance of succeeding in the business because of the minute-by-minute, performance-driven characteristics of the participants.
Biggs keeps on bleeding onto the page throughout the book; the painful oil short was just the beginning, and we cringe with him over the excruciating volatility of his earlier hedge fund, his prescient -- and early -- call in 1999 that technology was perhaps overvalued, and his argument with Jim Glassman that he'd rather have air conditioning than an Internet hookup while the audience hooted him off stage. Almost despite Biggs' successes, passages like these -- in rich supply in the book -- make him come across as both humble and honest. A passage from the last chapter sums up that impression best:
Investing is much more an art than a science. Intelligence, experience, diligence, a knowledge of history, an open mind and an obsessive nature are all important ingredients for the successful hedgehog -- as are intuition, imagination, flexibility and maybe just a touch of the seeing eye. How you mix and match, or what is the optimal combination of thee characteristics, is beyond me. ... It's hard to be a hedgehog and it's far from easy to be a user of hedgehogs. All I can say is, good luck.
James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
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