World Famous Comics: Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets
Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets
By: Steven Drobny Publisher: Wiley Average Rating: Binding: Hardcover Label: Wiley Number of Items: 1 Number of Pages: 384 Publication Date: April 21, 2006
Product Description: Inside the House of Money lifts the veil on the typically opaque world of hedge funds, offering a rare glimpse at how today's highest paid money managers approach their craft. Author Steven Drobny demystifies how these star traders make billions for well-heeled investors, revealing their theories, strategies and approaches to markets. Drobny, cofounder of Drobny Global Advisors, an international macroeconomic research and advisory firm, has tapped into his network and beyond in order assemble this collection of thirteen interviews with the industry's best minds. Along the way, you'll get an inside look at firsthand trading experiences through some of the major world financial crises of the last few decades. Whether Russian bonds, Pakistani stocks, Southeast Asian currencies or stakes in African brewing companies, no market or instrument is out of bounds for these elite global macro hedge fund managers. Highly accessible and filled with in-depth expert opinion, Inside the House of Money is a must-read for financial professionals and anyone else interested in understanding the complexities at stake in world financial markets.
"The ruminations of supposedly hush-hush hedge fund operators are richly illuminating." --New York Times
Inside the House of Pain It's a pleasure to say it: "House" is a worthy successor to Jack Schwager's "Market Wizards" series. Having first read it a few years ago, it's a shame I'm only just getting off my duff to review it now - in October 2008 - after so much has happened.
As of this writing, Wall Street as we know it has "ceased to exist" (according to the WSJ). The investment banking model has gone up in smoke. More than one featured player in "House" - like Dwight Anderson's Ospraie fund for example - has violently gone the way of the dodo. No doubt at least one or two more will be carried out in the ongoing carnage that has brought about the worst year for stocks (and perhaps commodities too) ever. Ever!
Needless to say, I greatly anticipate Drobny's updated and appended version (due out Jan 2009)...
Awe inspiring turmoil aside, it's a great book. And with the financial crisis sucking Wall Street into the vortex, it is perhaps instructive to note how the big hedge fund players have seemingly split into two camps.
On the one hand you have those like Ospraie, who were too exposed to commodities, or illiquid capital commitments, or maybe just leverage in general, to survive. On the other hand you have the big players like Farallon and Perry Capital (neither mentioned in "House") where little leverage is used at all. While the now defunct houses of Lehman and Bear thought nothing of taking on risks that would make a gun-slinging futures trader blanch, the best of the hedge fund survivors played it very close to the vest.
When the 2008 smoke clears - and the fires are still billowing at this point - the nearly $2 trillion hedge fund industry will look a lot different (and a lot smaller). But I imagine the bloodletting will work to the advantage of the survivors... the players who truly internalize the lessons in "House," as opposed to merely paying lip service to them.
There is another subtle yet marked division that stands out to me among "House" participants: those who cut their teeth on the equity side, and those who cut their teeth on the futures side.
The equity players, not to put too fine a point on it, are (or at least were) generally more fast and loose with risk. They seemed altogether more likely to double down on bets going against them, and to congratulate themselves on doing so. This was freshly highlighted for me in the Dwight Anderson interview (which I reread closely for "clues" after the widely reported Ospraie meltdown).
Anderson did not radiate feverish waves of self-destructive tendency (as, say, Victor Niederhoffer did in "Education of a Speculator"). And yet, in talking about his training, Anderson favorably references an ingrained habit of his mentor, Julian Robertson: the willingness to "ignore" price action, obtusely so if need be, and to get aggressively "bigger" when one feels one is right.
Anderson then references Paul Tudor Jones' mentality as a path not taken for Ospraie -- managing risk tightly via "technicals," something Robertson and cubs (Anderson included) chose not to do. Is it a truly big surprise, then, that Robertson's Tiger fund ultimately went under -- Anderson's too -- while PTJ is still around?
The lessons in "House of Money" are rich and varied. If you are a trader or an aspiring fund manager, you will surely get some excellent ideas from this book... or at least be reminded of some key principles worth reconsidering.
For me, the sad fate of Anderson (and others) serves as a clarion call warning against hubris. I have deep respect for fundamental traders, and a personal affinity for the virtues of value investing. And yet, perhaps befitting my early trading background, I ultimately prefer to "manage risk by technicals" as Jones does.
At the end of the day, it's an odds game in which information is never perfect. As with poker, you can be 80 - 90% sure, but you are very rarely 100% sure. So why not hedge? Why take on risk you don't have to? I cannot help but think that some traders (a small handful) have some mysterious and ineffable connection with risk deep down in their souls. This theory argues that the true "lovers of risk" also have the deepest respect for what risk can do.
Every one of the participants interviewed by Drobny is brilliant, no doubt excellent in their own way. In that they are like soldiers sent out to battle, or grizzled poker pros making their way through a giant tournament. Some will rise and fall on the sweep of serendipity alone... the panic of 2008, in particular, will slay virtuous and wicked alike. It doesn't make sense to lament this, though; the sweep of fate is just part of the deal. Fortuna will not be denied; excellence and dedication gets you a ticket to the dance, but it in no way guarantees a share of the prize.
Those who wish to compete on talent and drive alone are no doubt put off by the fickleness of fate... as are those who got lucky early in life (right parents, right schools etc.) and want to freeze the status quo in place.
But I take comfort in Fortuna's whims for a reason that might seem odd to some: She makes sure that the top spots are never permanently filled, and that hungry fighters always have a chance. There are always new stars rising as old ones fall from the firmament. (And sometimes, instead of falling, the "old" stars happily retire to their memoirs and their gardens.)
And finally, the enthusiasm and diverse ideas in "House" reminded me of one more key truth in regard to markets, trading and investing: It's a truly beautiful game -- one worth playing for its own sake, even in light of horror shows like late 2008. Those who love to play for the sake of the game itself will find day-to-day reward in that, above and beyond the millions won or lost.
Good Stuff Amazing to read, how differently managers actually approach what is basically the same job: Make money in capital markets. One cannot live without stop loss limits, while another dislikes them a lot. One is riding trends, another one is contrarian. one loves to read research and newspapers, and travel, another one finds none of that of any use. But all of them claim to be successful. How comes? I'm just halfway through, and have a couple of hypothesis. Keen to see, which can be tested and falsified in the course of the second half. Good inspiring read anyway for all with some knowledge of capital markets.
Wall Steet bound....then read this. As a professional in the ETF business I highly recommend this book. After I read this book I gave it to my son as he recently graduated college and is planning a career on Wall Street-- It's that kind of book. Steven is well connected in the Hedge Fund world and this book is a testament to that. If you buy it to just read Jim Rogers section - your money will be well spent.
Just a waste of time for individual investors. I am the trader who is managing EZ Stock Options . com. I have been researching, developing, backtesting, and improving winning trading strategies for the past 7 years. This book has no useful information for investors. It is just talking about how in general (no details at all about strategies) he has made money for Yale University by managing their fund. Don't waste your money and more importantly your time on this book.
A Little Overrated..... Judging by the reviews here, you would think that you are buying the next great book in the mould of the 'Market Wizards' series by Jack Schwager. But, trust me, you will be sorely disappointed.
Drobny is a good writer and does ask some good questions of his subjects. But this is definitely NOT a collection of 'top hedge fund managers' or a collection of some of the 'greatest minds in global macro investing'. In fact some, like Andreas Drobny and Sushil Wadhwani are not even hedge managers. They are just academics and central bankers, in the author's own words.
Read it if you have been through most of the other good books out there and there are no other choices. The interviews with Jim Rogers (as always), Jim Leitner and Scott Bessent are entertaining. But there is nothing exceptional or eye-opening about any of these interviews. There is no shortage of hedge fund superstars in London or New York, so it would have been nice if Drobny had gotten access to some of them.
In short, there is more hype than warranted with this book. Get it from a library if you can!
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