April 11, 2016 § Leave a comment
I’m changing tack.
I have decided to contribute to the wider good and share some of my knowledge with you. I want to go beyond telling you what it is to work at a hedge fund. I want to tell you what it is specifically I do. Any why.
The second part is (of course) answered quite easily: money.
The first part is entirely focused on the acquisition of the second.
But give us specifics, Tim, you say. You’ve been away so long, we don’t want any more of your platitudes. We want to make money like you. Now.
Right. Enough talking. One of the prime hedge fund strategies which you, the lay investor, first needs to get to know is value investing. Value investing is the type practised by the likes of Warren Buffet. Seth Klarman. Michael Burry used to do it (and inadvertently stumbled on the greatest trade of all time in the process). It’s different to the type George Soros does. Or Jim Simons. Or the Citadel guy. You know who I mean. Crook. They trade on news. Data. “Tips”. No this isn’t like that. This is the nitty gritty.
Value investing is getting down to the fundamentals of the company stock. Getting into the deep darkness inside. It’s accountancy work. It’s number crunching. It’s serious figures. What’s worth more than it’s price reflects? Have the assets been overpowered by sentiment? What will the balance sheet look like in 5 years time not just in the next ten minutes? Is its cashflow stable? Does it have good management? Product. Who will buy? Intrinsic not extrinsic. It’s notes not music.
My first pick is therefore a value stock, Valeant Pharma. Valeant’s stock price has gone from $118 two years ago to $257 at its peak last year to $33 now. That my friends is price volatility. The company’s stuggled to meet debt levels. It’s been stung by sentiment. Fear. A shareholder revolt over its CEO. SEC investigation. Restated earnings. Delayed annual report. Overpriced product. Anything that could’ve gone wrong has. So Tim, why the confidence?
Why do I think the stock will do well? Two words: Bill Ackman.
Mr Ackman, CEO of Pershing Square, has at last count 19.4m Valeant shares. That’s a net bet of $1-2bn (purchase price). Bill, as he’s sometimes known, is one of the wormiest, cleverest, trickiest men in the world of hedge funds.Seriously he’s a cad.
My friend Bingo Buckman had lunch with a man who knows Ackman well. He said that Ackman’s putting his shirt on this. He’s all in. And Ackman, my friends, rarely gets things wrong. He will turn investor confidence himself. Ackman is one of the most revered people in this office. He has that thing which you need above all other things to be a successful hedge fund manager: an ego. (not a successful investor mind you. That just requires patience).
Ackman’s built his shop up from $50m to $13bn. He’s achieved some of the best returns on the street. He’s got more between the ears than most have between their legs. And he’s launching a rocket under Valeant.
What’s this got to do with value investing, Tim? Well let me tell you, my friends–my value investing isn’t the company. I’ve looked at the fundamentals of the man.
Ackman: that’s my pick of the day. Valeant: that’s his.
April 9, 2016 § Leave a comment
It is with unimaginable horror that I’m watching a small bird in the branches of the Japanese cherry tree outside that is in full bloom. The bird’s been hovering there for the last twenty minutes above my car, a brand new Agera, list price £1.2 million, which I’ve left parked in the cobbled courtyard below. I know what’s going to happen next but even as the bird opens up its bowels and lets loose a stream of white filth onto the Gallo yellow paintwork of my car, I feel my body go numb. This is tipping me over the edge. The bird turns its malevolent little face at me and stares, then zips up out of the courtyard, over the cluster of trees and into the grey wilderness of central London.
In a few minutes from now the president of the European Central Bank will announce the results of a survey into the European economy. Looking at them all, the other traders, they’re leaning back in their chairs, chatting unconcernedly. They look so relaxed. I feel sick.
I turn back to my screens—the ones that are flickering between two shades,
red- black – red – black – red – black.
It wavers from colour to colour as the numbers click up and down. Black means I’m up and red means I’m down. It can become hypnotic sometimes.
I check my figures. It’s gone through. A three quarters of a billion trade. It’s more than anyone’s put on all year. More than I’ve ever done in my life. I’m going against the market. And nobody here knows.
My eye zeroes in on the newspaper open on the following article:
Mayfair dog found dead
The body of Mervyn, resident cocker spaniel of hedge fund Pointfort House, was found hanging from a dog lead secured to a pipe, just before 7.30am in Albermarle Street, London, yesterday. According to friends and colleagues, Mervyn, 8, who had been missing since August 29, was hanged by Fawkes a pseudo anti-capitalist group protesting against financier excesses. Last week, the group attacked a cereal cafe in Knightsbridge, setting fire to hundreds of packets of Golden Grahams…
Senseless. Utterly senseless. And what is it that drives a man to kill a dog? What possessed them? I don’t know. But I feel there’s something dark lurking behind the pages. Something more behind this. Alas poor Mervyn I knew him well. I take a few deep breaths and pick up the slender, unread, copy ofSiddhartha lying in the corner of the desk:
“A journey of a young man from a life of decadence through the illusory joys of wealth to the nirvana of reality.”
My hands are sweating. God, my hands are sweating. I’m interrupted by the sudden blast of a hooter and a loud voice crying:
It’s eleven o’clock. Oh shit. It’s time.
Suddenly a nut-brown, blinking visage appears on the screen. He doesn’t look particularly awesome. In fact he looks like a mouse.But for the multitude of investors around the world, for the many hedge funders whose existence is tied up to the progress of money, he’s Superman. He is God. He is Mohammed. He is Giovanni Gio, president of the ECB.
I shiver. Porcupine prickles trickle down my neck. I start to feel adrenaline course through me. I tap my watch for luck.
“Good afternoon, ladies and gentlemen. Today we’d like to present our second annual review of the European economy. It’s the report that determines our forecast of the continent for the next five years. This report was compiled through deep analysis…”
The red and black flickers softly on my screen. It’s poised, ready to break one way or another like a beast on a leash. Like a pig. I start to breathe deeply, a technique I learnt at a yoga retreat at a Keralan spa. In my pure focus I centre myself. Slowly my imagination bears into my emotions and everything else fades away.
“We’ve compiled thousands of data points and assessed the status of each European economy and reached a deep insight…”
I slow my breathing. Slow it right down until I’m practically seeing stars, at the same time saying a little mantra to myself.
Bad, bad, bad.
“This statistical undertaking is unprecedented in our history. The work of our member states has given us a precise picture.”
Bad, bad, bad.
“Our people have carefully charted…and logged…to determine…our future.”
Bad, bad, bad.
“Based on our models…we’ve formulated…scenario of the state of economy. It is clear to us that in this year the situation in Europe is…”
Here it is!
“…better than ever before.”
A sea of red erupts on my screen. The market’s gone up by 200 points. My trade has fucking plummeted.
PLUMS, PLUMS, PLUMS, PLUMS!
“The study shows strong, steady growth…stable fiscal surplus…topping the high end of our estimates…”
“Buy! Buy! Buy!” comes the shout, as a wall of losses scrambles my screen knocking me deep into my chair. One second is all it took. I’m down by
The ECB president’s words are pumping fuel like a supertuned engine through the economic system and traders are scooping up money by the millions, rampaging the floor like horned ungulates. I need to get out of this as quickly as possible— sell, dump, unwind. But my mind won’t work. I’m swimming in a pool of formaldehyde.
Shake yourself out of it, Green!
I convince my hand, which is weighed down by stone, to pick up the phone and call my broker, Bob. Three rings and it goes to voicemail. I hang up.
The market’s moving. Faster and faster. I’m forty million down. I pick up the phone again and call another broker. No reply. Asshole. Where are they?
C’mon Green, calm yourself.
I channel my inner breath— breathe, pause, let the market reverse itself— this is just froth, adrenaline, over-excitement, it will come back down.
Bang! 200 points up!
I’m £50 million in the red. I’m being dragged by wild horses across a floor of cement. The market’s not stopping, it’s still going up. The numbers are revolving at a rate of knots, spinning wildly. Shit, shit, shit. Why did I go against the market? Never go against the market— isn’t that the saying?
“Daniel!” I scream down the phone.
“TG. How you doing buddy? Good news, huh?”
“Listen, shut up, I need you to shift a position.”
“Sure I can sell at…”
“No I need to sell.”
“I’m closing a short.”
I choke back the tidal wave of horror that’s swelling up.
“Can’t explain,” I say. “Client money. Exit. Quickly. Moving against me.”
“Okay, I can do eighty on the…no wait it’s just gone up to eighty five.”
Shit. Haemorrhaging money. Innards contracting.
“Eighty seven and a half now.”
I look at my screen. It’s red. Everything is red.
Jesus Christ. I’m getting decimated. I’m on the verge of tears as I ready to cut it, steel my hand when…hold on…
Something strange has just happened. The screen’s flipped. All the red’s disappeared. The monitor’s flashing black…my £60 million loss just vanished. It’s suddenly blinked to £70 million—gain. This can’t be right? Is there something wrong with my screen? I slap the monitor to make it work again.
“D’you want me to do it?” rabbits Daniel on the other end.
I smack the monitor again but it’s still black. What is it? Why won’t it? How do I?
“Tim I can execute…”
I’m trying to compute but the only thing I can think of, the only way this could happen, is if the market plunged.
“Daniel,” I say lowering my voice to a whisper, “what are you seeing on your screen?”
“Just wait.” I slow my speech and enunciate each word carefully. “Tell me, Daniel. What can you see on your screen?”
There’s a garbled noise on the other end of the line.
“Daniel, did you see that?”
The thud of a falling receiver.
“WHAT THE FUCK IS GOING ON?”
A second ago it was up two percent. Now it’s fallen by five percent. My P&L is in profit. I’m up by ninety million and trying to understand then— zoom– the market plunges, the screen changes again, my account, whirring to black at a speed I’ve never seen before.
+ £130 million, + £160 million, + £180 million
“WHAT THE FUCK IS GOING ON?”
There’s a horrible silence in the room. To my left a trader with phone in hand, mouth moving robotically, open and shut, open and shut. The other, on my right, is pressing his keyboard the sweat falling through the little rivulets of his face. The noise has died. The river of testosterone’s evaporated as these adrenalized ungulates stop, their horns receding, shrivelling back into their bodies. Someone’s shrieking:
“What did the ECB say? What did they say?”
And: “Fuck, fuck, fuck fuck….”
My line goes dead as a river of testosterone vomits onto the floor. Things around me have suddenly taken a turn for the strange.
My constipated bowels threaten to loosen themselves. But with joy! This is biblical. Someone’s selling in unheard of quantities. Somebody—something!—is pounding the market down, taking massive chunks from it. In a matter of seconds the euro loses fifteen trillion pounds. It’s swallowed up as markets dive, indexes plummet and, percent by percent, the world falls into the abyss. The traders don’t know where to look. Their screens are filled with red. Hope, like a flying brick, exits the room. The place is breathless as all the air swooshes out. Finally, three minutes later, after it’s had every ounce of life rung out from it, at eleven thirteen the bell sounds and the market is: CLOSED.
I look up at my screen.
I’ve just made £666 million.By mistake.
I look out of the window at the blossoms scattering on the ground by a cold wind that runs through the tree. I feel alive.
“It’s not Jaws. It’s a fucking whale!”
*The Koenigsegg Agera R can do 0-300kph in 14.53 sec and brakes back to 0 in 6.4 seconds. It owns seven world speed records. Only eighteen examples of the Koenigsegg Agera R exist. It’s name means “action” in Swedish. In Greek “ageless/infinite”.
** With its white cheeks and strikingly glossy black head the bird is clearly identifiable as a Great tit. Tits are passerine birds in the tit family Paridae. They are considered to be friendly and sociable birds. England has six varieties, ranging from the small Blue to the Willow with its sooty black cap and untidy bib, of which there are only 41,000 left in the UK. This particular one, the Great tit, is different. It has a sharp brutality, an aggressive nature that allows it to thrive in any environment. It will chase most birds from the bird table. It is a harasser. An alpha tit.
December 4, 2015 § 1 Comment
A note heard can transform a day from the mundane into the awesome. Right now, on my iPhone, I have, in no particular order, a mixed selection of :
Pachobel’s Canon: both inspirational and soothing. I play it while shaving as I watch the razor glide smoothly over my face
JS Bach: a melody that takes you to heaven and back and then to heaven again
Maroon 5: their punchy classic, “Moves Like Jagger”, try n play that without busting a move!
David Guetta: time for some fresh French flair
Wolfgang Amadeus Mozart: every last syllable of his name resounds with genius.
The Art of McCartney: The best and most loved Beatle commemorated by a bunch of ind. ledges singing his tunes. Love-love-me do. Oh yeah.
Coldplay: edgy, melancholic, disturbing, soaring
Of course in these festive months I’ll also be tuned to the festive ditties. In spite of our ever-grinding world of cupidity and egoism, there are seasons where you’ll find even hedge funders turning warm. In days of winter my greatest comfort is resting beside the fireplace until I achieve somewhere in the region of 50 degrees C, supping on a Fortnum’s Gluhwein, listening to soothing winter music. Amongst my favourites are:
Michael Bublé : his version of Silent Night– sans doute, the greatest Christmas song they ever made.
Pavarotti: Ave Maria, I listen to this while driving home, try and hit the high note, you’ll tear open your larynx
King’s Choir, Cambridge’s carols. Ding-dong-merrily on high, ah those halcyon schooldays, toasting toes and marshmallows!
Chris Rea: Driving home for Christmas, try listening to this while driving, you’ll burst open your eardrums
Music, it’s what makes us human beings and joins us. I truly believe in its healing powers. In these days of trouble we need it more than ever.
So play on, let me have surfeit.
October 27, 2015 § Leave a comment
Many of you ask…
What do you do in these long moments of silence, Tim? The answer is I wait. I uncoil myself, stretch out into deep evenings of solitude and wait.
One of my favourite pastimes is to study the old masters. No, I don’t mean Rembrandt or Caravaggio. I’m talking Seth Klarman and Paul Tudor Jones. Klarman’s superb. Really superb. A genius trader who doesn’t shy away from indulging his genius. But he doesn’t need not to. His success speaks for itself. A thirty-year stretch of home runs that would make Babe Ruth quail.
I managed to get my hands on his book “Margin of Safety” published in 1991. If you haven’t read it do so. It’ll give you a new perspective on things. I now see intrinsic value in everything. I see food as calories. I see paintings as auction value. I see night as the absence of light.
Sadly I was forced to pay $15,000 for the book to an old lady from Nebraska. It took seven hours of hard, hard negotiation to get her down to that price. In the end I felt jaded. Still, I now own the book. Here’s a nugget.
“Investors will frequently not know why security prices fluctuate.”
How very true! Frequently doesn’t quite cover it.
There are, of course, certain things that even the great man gets wrong.
“Investment success cannot be captured in a mathematical equation or a computer program.”
I wonder if he’s heard of Jim Simons? Or the Medallion Fund? Or Steve Cohen?
My other pastime of late is to watch the 1987 Tudor Jones’s famous film “Trader”. If you haven’t seen it do so. It’s not that he calls Bruce Willis “a stud” while wearing his trainers that he bought at auction which he says are responsible for a 30 point pop in the stock market every time he puts them on. Or that he spends most of the film biting his nails and at one point actually breaks down in tears when he loses $5 million in a day (it was 1987, it’s understandable). It’s his incessant drive. His singularity of purpose. Whether it’s on the 1980s style exercise-bike-cum-rowing-machine, the red braces and oversized glasses, the Quotron trading machine or breaking down a multi-million dollar currency trade from his home phone while chomping on pizza, it’s all done with a maniacal, mouth-foaming intensity that we, of a lesser persuasion, can only watch and admire.
Of course you’ll be quite lucky to get hold of the film—he bought up and destroyed most of them soon after release. I had to purchase an old copy on VHS tape which cost me $12,000 from an old lady in Nebraska. Yes, it was the same one. This time she really took me to the cleaners—16 hours of incessant, turgid negotiations. At one point I spent a continuous stretch of 3 hours on the other end of a deathly silent phone after she fell asleep without telling me. That I had to shell out a further £212 for a VHS player only added to my invidious distress.
This Lady of Dark is called Miss Dorothy L Dickstein—if you ever come across this old crone, beware. She is the devil.
Anyway, as Klarman says, always have a margin of safety. Despite the pain I’ve been through I now hold two assets whose value will grow over time. Her’s is perishable.
October 8, 2015 § Leave a comment
There is a famous saying-
Sotheby’s will launder your sins for you.
Just today I was strolling round one of the London galleries glancing at the various pieces on show, distracted, rejected, ejected by the atropaic green dot—that is the green dot saying “sold.”
As my own eye shifted warily from piece to piece, I was struck with one thing. How ludicrously expensive it all was. Something’s wrong when you’re paying £1 million for a Taylor Shinbone eggbox.
But it had all been bought by fellow hedge funders.
Waking out of the gallery on this cold and frosty Autumn afternoon, my main take away from the experience is that art continues to increase in price even as the rest of the market shuffles towards the abyss. Why?
It is impossible for a canvas brushed with paint, a marble statue with no arms or a steel and metal monolith with upraised girders in the shape of tubes and a mesh world signifying banker’s excess, to have an intrinsic value of a hundred million dollars. These are not tangible assets like those of a company, say, for example, VW.
For hedge funders, the value of art it isn’t governed by tangible assets. But by jealousy and desire.
Art is an object that provides social currency today. It knits together a select group of global nabobs and those who want to be seen sharing economic and cultural rank with them. They gain from it a thin veneer of respectability that they plaster all over their faces like stage make up.
Look at the Qataris. Who took them seriously until they bought that Cezanne? I knew they had money, but did I know they were going to use it like that? Fuck.
This currency of art gives you access to the dominant economy. It’s a symbol of your membership of a global class of the world’s elite. In the cold nuclear freeze of economic crisis, it is far less important that it can be bought or sold but that you have it. People will follow you, regardless. For the man with the last Leonardo is vinci. In the land of the blind, the trompe l’oeil is king.
Anyway read the next excursion of “Anatomy” here.
September 30, 2015 § Leave a comment
What is a crisis? Is it losing a leg? An arm? An arm and a leg? Being the biggest investor in Glencore? Or is it being unable to afford your next car? Or maybe it’s your mortgage payment going into arrears?
The Greek word krino meant separate, judge or decide, and from it came the nouns krites “judge” – from which we get critic, and kriterion, a test to judge by.The related word “krisis” signified the preference of one alternative over another. The Day of Judgement is hemera kriseos. Most commonly, in English, the word signifies the climax of a disease. The point after which the patient recovers, or does not.
In 2008 the “crisis” involved a minor reshuffling of finances. It was a wound which led to a small death (cf Lehman). But the patient at large got up and recovered. Civil unrest, mass fomentation and revolution–these did not happen. Governments were not overthrown. High net worth wealth rose.
Now talk comes of another crisis, another disease, brought to us by the circling winds. China is battered and our Great Yellow Hope is going belly up. Greece, the cradle of all Western civilisations, falters. The Middle East remains a hotbed of infamy. And the Fed might raise rates.
But no, none of these constitute a crisis, dear readers. What is the real crisis? It’s the crisis that never ended. Debt.
Since 2008 debt to GDP levels have not shrunk. From Q4 2007 to Q2 2014 the global amount of debt outstanding increased from $142 trillion to $199 trillion. Household debt has grown at annual compound rates of 2.8%. Government debt is up 9.3% acr. It is a global credit bubble. And this is bigger than the last one.
But why are you getting so technical, Tim. This isn’t like you. We want to hear more about girls and murders.
Well let me ask you this–if it was debt that got us into trouble the last time, then what will happen now? This crisis is about not being able to afford your next meal. Not having a bed to sleep in overnight. Not being able to clothe your baby. It is a sickness, a disease, a lingering malady from which there will be no revival. Our real hemera kriseos. And if that doesn’t lead to murder then what will?
Change, revolution, deconstruction–whatever you wish to call it– it is coming. There are no tools to stop it.
In the meantime read the next instalment of “Anatomy” which details everything much more poetically.
September 21, 2015 § Leave a comment
I’ve been inundated with press calls. Bloomberg, Süddeutsche Zeitung, the NY Times they’ve all been jumping down my throat. Asking about the precise mechanics of the trade. Who is this Whale. Everyone wants to know.
Although I would normally turn down request from the media actually, right now, I’m open to comment. As is:
You will soon find out.