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

Chapter 3

The House

I headed off the beaten path of financial capitals to Stockholm to meet a fixed income specialist and pioneer in Swedish financial markets. On a gorgeous, late summer day, we strolled around town, discussing the credit crisis, China, pension funds, and a myriad of things that had taken place over the previous 18 months. This manager builds a diverse portfolio of small bets, all reasonably independent of each other, where on average he feels he has a slight edge. This process led him to once present his fund to his investors as a casino, although he was quick to note he was the house, not the gambler. After all, as Steve Wynn once said: “The only way to win in a casino is to own one.”

Overlooking the marina, we ate roe and fresh fish, as my mind raced to keep abreast of “The House's” thought process, a rare combination of rapid-fire connections, pragmatic wisdom, and deep analysis. Where trading often conjures images of taking outsized bets and winning, over time his game is won through superior portfolio construction. Later, in his office, we dug more deeply into some of the systemic issues that continue to plague the world economy and certain challenges that real money managers face within that environment. He thinks real money managers should use their inherent strengths and more effectively manage their endemic weaknesses, adopting innovative portfolio management techniques to address the uncertain road ahead.

How did you get into this business?

I started ...