Still halfway through it, but it's a good read so far. I like this quote:
"Today we have a recruiting group, and what do they do?—they throw resumes at you, and it's, like, one business school guy, one finance major after another, kids who, from the time they were twelve years old, were watching Jim Cramer and dreaming of working in a hedge fund. And I think in reality that, probably, if anything, they're less likely to make good investors than people with sort of more interesting backgrounds."
I talked to a lot people in a lot of fields before landing where I am today and the people in each one who really knew what they were talking about all shared the same belief as this hedge fund manager. Much of the technical knowledge necessary for these jobs can (only?) be learned on the job. But the ability to look at problems in innovative ways comes from having more lateral experience.
The people, like this guy, who might consider you are well hidden behind a wall of HR drones. Therefore if you do have lateral experience you either need to _also_ be able to pad your CV well enough to get past them, or otherwise hope that your networking skills are excellent and you get lucky with an introduction.
I got my current job through a series of near-miraculous coincidences. However one in a million chances come up very frequently (because the game is played a billion times a day) so increasing the number of tickets you hold by meeting as many people as possible is a good idea.
Also, great section on assumptions and how sometimes disbelieving the most commonly held assumptions - the value of the triple A paper in this case - can lead to extraordinary profits.
This was such an awesome dialogue. Awesome interviewer, and an awesome hedge fund manager.
It's hard to read as an entrepreneur because I think there's a difference between financial people, such as hedge fund managers or venture capitalists, and entrepreneurs.
Most entrepreneurs that I know are highly optimistic, and almost willing to look beyond risk and uncertainty. Of course, that's not to say entrepreneurs are stupid with risk, or don't take calculated risks. But I would say investors are much more risk-averse.
What I took away from this article: the housing market was too good to be true. You took Triple-A credit, and stuck it in the same pool as Triple-C credit. And you bet on the whole thing. I think that was pretty risky, and maybe it would have worked out if you rolled the dice a few more times, but most people just can't afford these houses. And now we're seeing the burst.
I suppose it's a bit sobering to read. It reminds you not to be stupid about risk, but definitely take risks. I better just stop there ;)
"What tends to happen in financial markets, is bad things happen when you really divorce the people who take the risk from the people who understand the risk."
In the situation we have today, where people have made bad investment decisions, where people built houses they never should have built, there’s a misallocation of resources. The loss has already happened. The loss isn’t what happens on a balance sheet: the loss is what happens when someone cuts down a tree, makes cement, builds a 6,000-square-foot house in a place it should never be built. So the loss has already happened. The question is: How do you allocate that loss? And if you don’t allocate the loss, if you pretend it isn’t there, then this has really baleful consequences for the economy.
I would invest my money with this guy. most people in the financial sector don't seem to realize the real life consequences and causes of the markets they manage.
This is more about over-leveraged institutions crashing out as growth in the derivatives market reverses than problems with the construction of actual houses.
You can buy and flip a home without building one. You just need easy credit and a rising market.
"they needed to take Bear out and shoot it in front of everybody. So they took it out, at a 2-dollar offer, all the senior management is gone, and that’s the financial equivalent of taking the shareholders out and shooting them."
seems like a smart enough guy...typical "trader"...doesn't care about the direction things are moving, as long as they are moving. traders hate a sideways, sluggish market...they need volatility. he must be happy these days.
i disagree with his implied comments on the dollar. this is a dead currency as of friday. i expect the debt to hit twenty trillion by 2018.
look at the wikipedia page for the french revolution. accumulation of vast excess debt destroyed the monarchy. no one thought things would/could end... they thought they could just abuse the currency forever and somehow things would magically turn around, even though everything they actually did just made things worse. sounds like america today
i say the dollar will not last until 2025. no dollar...no USA. USA IS the dollar.
i disagree with his implied comments on the dollar. this is a dead currency as of friday
The interview is from January, which in Hedge Fund Manager years is, like, three aeons ago.
You'll notice that the dollar has been going up recently, and is in fact pretty much back to historical norm levels, so it seems the market does not share your pessimism.
The market is pretty good at ignoring things that it doesn't want to see. Regardless, I'm not too worried. Every time there is a recession, the media tries to make it look like the sky is falling. Remember the Savings & Loan "crisis" that was going to ruin the economy for decades? Yeah, turns out that it didn't happen.
Even if the dollar is weak, there is still a lot going on in the US. The world can't really write the US off, and the US isn't going to be a "loss leader" like China... so eventually the economy will recover.
On Friday there were a lot of short-sellers being told they had to buy NOW to cover their positions. That caused an immediate spike upwards in equity prices which will soon arrest and slide back down as people get out of Dodge.
The dollar is held in place by Chinese Treasury purchases, and the flush of money out of various stock markets into what is considered a safer short-term asset. Currency inflation is a longer-term risk than market collapse.
"Today we have a recruiting group, and what do they do?—they throw resumes at you, and it's, like, one business school guy, one finance major after another, kids who, from the time they were twelve years old, were watching Jim Cramer and dreaming of working in a hedge fund. And I think in reality that, probably, if anything, they're less likely to make good investors than people with sort of more interesting backgrounds."
I talked to a lot people in a lot of fields before landing where I am today and the people in each one who really knew what they were talking about all shared the same belief as this hedge fund manager. Much of the technical knowledge necessary for these jobs can (only?) be learned on the job. But the ability to look at problems in innovative ways comes from having more lateral experience.