There are two sayings in the investment community that came to mind while reading this book:

1)  With all the analysts out there valuing securities and discovering market inefficiencies for 24 hours a day its impossible for you to beat them and thus beat the market.

They are right.

2)  If someone found a way to truly beat the market, they would make a bunch of money and you would never hear from them.

They were right, until this book.

Hedge Hunters takes a chapter and devotes it to the story of a hedge fund manager or team of managers.  There are 18 chapters including an introduction profiling 17 different managers or teams of managers.  You will not be able to consistently beat them in the market.  These people don’t just know how the market works, they know how a business works.  Hell, they even know the people that run the business.  Simply put, there are people out there that can beat the market, but they are diamonds in the rough.  These are those diamonds.

Your thinking, “Well then Weakonomist guy, if they are so great why doesn’t everyone put their money in their hedge funds?”  In order to exploit the market you have to have a small fund, most of these guys keep their doors shut around a billion dollars.  Yes a billion is small.  This way when they take a position (buy something on the market) their movements don’t trigger a massive following.  If we all put our money in the market in the same place at the same time, the advantage is gone.  Then there’s also the thing that some hedge funds require initial investments over $100,000 just to get started.

The book is a fascinating read.  We get to see how these guys got started in investing and how they’ve been able to beat the market.  Backgrounds are as vast as any industry.  One guy is a history major, a second manager majored in Greek, another was around during the Great Depression and still going strong, and another still was inspired to start a hedge fund by LL Cool J (who actually knows a thing or two)!  We don’t hear about these folks usually because none of them are running big operations.  They choose to stay small because that’s how to stay successful.

Who then does know enough about these people to write the book?  The author is of course an insider.  Katherine Burton of Bloomburg has been reporting on the hedge fund industry since the early 90s and knew many of these people personally before writing the book.  Each manager was interviewed personally by the author for the book, on multiple occasions it seems.

The incomes these people see and the type of work they do really interests me.  I could certainly see myself doing what they do someday.  But some of them bring into question they very problems the investment industry is facing these days.  We’ve talked about speculators in the oil markets that might be driving up prices.  They buy and sell oil contracts with no intention of taking delivery; to me this just seems dishonest and floods the market with greed.  One of the managers in the book does just this, regularly.  Other managers are short specialists.  Shorting is another investment strategy I frown upon.  Its a way to make money on the falling price of a stock.  Don’t get me wrong this isn’t illegal; but like speculation on commodity markets, it just doesn’t feel right.

With that said the book is still fascinating.  Many of the managers are actively involved in the companies they buy.  They actually make meaningful contributions to the companies they own.  This book is highly recommended for those that understand investing at a medium level.

You’ll like this book if:
You’re interested in how hedge funds work.
You want to know more about investing beyond index funds
You believe the efficient market hypothesis is bull for the short term.

You’ll hate this book if:
You don’t know the definition or understand terms like short sell and put option.
You hate money grubbing greedy corporate types, or believe everyone on Wall Street is like that.
You don’t know what a hedge fund is.
You don’t understand any of “You’ll like this” statements.

Related posts:

1. The Weakonomist Reads a Book: A Random Walk Down Wall Street
2. The Weakonomist Reads a Book: The Millionaire Next Door
3. The Weakonomist Reads a Book: The Tycoons
4. The Weakonomist Reads a Book: Why Smart People Make Big Money Mistakes (and How to Correct Them)
5. The Weakonomist Reads A Book: Predictably Irrational

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