The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money

Foreword to the Previous Edition

Question: What is the difference between a Peruvian peasant farmer and a Harvard or Yale endowment manager?

Answer: The peasant is the one who understands risk-sensitive investing and sound investment goals.

That question and answer illustrate why I, as a mere impractical academic historian, find the practical world of investment fascinating.

I got my first peek into the mystery-wrapped world of hedge funds several years ago, when Steven Drobny invited me to give the opening address at his annual conference for hedge fund managers. That initial peek aroused my curiosity. It led me to return to his conference in the following year as an observer, to meet some of Steven’s colleagues and invited managers, to read Steven’s previous book, Inside the House of Money, and to enjoy brunches with Steven from time to time, where we talk about anything from hedge funds and raising children to fixing the world.

One reason why I became fascinated in the world of investing was the parallels that I saw between investing and history. The issue of risk is acute in both of those spheres. Endowment and hedge fund managers evaluate upside and downside risk to the money they manage for other people, and they make or lose money as a result of those evaluations. The historical and modern peoples whom I study assess upside and downside risk to their own resources that they manage, and they and their families survive or die as a result of those evaluations.

For example, ...