1
Introduction
Ah, but a man s reach should exceed his grasp, or what s a heaven for?
Robert Browning
A
Hedge Fund Tale is a business and investing book masquerading
as a fable. I have come to believe that professional investors,
especially hedge fund types, must not only have superb analyt-
ical and judgmental skills, tremendous intensity, and a dollop of luck,
but, to survive and be successful, they must also profoundly compre-
hend that they are going to be vulnerable to and enslaved by extreme
mood swings and terribly susceptible to hubris. Both can be mortally
dangerous not just to their investment health but also to the well-being
of their most intimate life relationships. Too dramatic? I dont think so!
This book is about the investment management business, the rise
and fall of hedge funds, and the various forms that the plagues of the
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great fi nancial panic assumed. It is in the form of a fable because I use
disguises to mask identities, just as I did in my previous book, Hedge
Hogging. However, at its core, it is a book about peopleinvestment
peopleand my faint hope is that their stories will help future inves-
tors deal with the ecstasy of fi nancial victory, the black dog of despair,
and the mortal sin of hubris.
Hedge funds were the gold rush of the past 20 years and, like all
bubbles and manias, ended with a bust that destroyed many of the
egomaniacs and most of the latecomers, and even took out some solid
citizens. The immense wealth accumulated in a few years by mostly
young hedge fund managerswho havent hesitated for a moment to
spend it osten tatiously and often rudelyhas generated great animos-
ity and envy from everyone else. It’s a tale worth exploring, as it is lit-
tered with compelling stories of triumph and tragedy.
Almost by defi nition, those who are willing to live by raw perform-
ance alone are mostly people who believe their investment life reach
should exceed their grasp. Beating the stock market infl ames even a nor-
mal ego. Becoming very rich very fast has swiveled many a head to the
point of madness. As the ancients warned us, “Those whom the gods
would destroy they fi rst make mad,” and “Pride goeth before destruc-
tion and a haughty spirit before a fall.” Remember, Icarus, whose reach
exceeded his grasp, sank headlong “through the affrighted air” when he
went too close to the sun on “unfaithful wings.”
Over the course of my 40 years in the professional investment
arena, I have known many a charming, ambitious Icarus who has fl own
too high. The business breeds them in profusion. The protagonist of
this book, Joe Hill, is an imaginary character, but his path from rags
to riches to perdition personifi es the arc of the lives of so many hedge
fund people I have known. I have noticed no correlation between
hedge fund success and being born on the right side of the proverbial
social tracks or having gone to the fancy colleges and the best business
schools. A glittering resume helps a lot in getting a job, but a majority
of the winners I have known have undistinguished pedigrees; brains,
guts, drive, and intuition put the points on the board. Performance
investing is a numbers game.
That’s why I spend space on Joe Hill’s background. The early
chapters of this book try to develop his character in terms of his will to
2 introduction
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