More Money Than God. 3 Hedge Fund Managers
Wonderful World of Hedge Funds
The world of hedge funds has been feared by many for the strategies that hedge fund managers employ. Every manager has a different strategy. These strategies differ greatly from the strategies of mutual funds, which the general public perceives as safer. The opportunity to make large amounts of money is less, but mutual funds tend to be a safer place to park your money. Alfred Winslow Jones laid the foundation for modern-day hedge funds, while John Meriwether and John Paulson paved their own ways. Alfred Winslow Jones is considered the “big daddy” of the industry, though he experienced a far-from-typical trip to the top as a hedge fund manager. Yes, Jones attended Harvard as his family did, but after graduation decided that none of these Ivy League career paths suited him. He traveled the world for a year, worked as a statistician for an investment counselor, but ultimately joined the State Department and was posted to Berlin. He returned to New York 4 years later. It wasn’t until 1948 that Jones turned his mind to Wall Street. He had been a graduate student in sociology at Colombia University, and with this new way of thinking, formulated that stock prices did not move in trends. Instead, stock prices fluctuated because of predictable patterns of investor’s feelings about the stock. This theory became the basis for Jones’ investing strategy. When the stock market rises, it’s right to assume that there is much investor optimism, continually pushing the market up. The key was to get out when this investor optimism would turn around. When all signs point to a bull market, Jones would not settle for putting only 100% of his fund into stocks. Instead, he would borrow money to buy more stocks in order to be long more than the value of his capital. When he began to sense a reversal in optimism, Jones would sell his stocks short, rather than liquidating his position. Jones said his strategy was to use “speculative means for
The world of hedge funds has been feared by many for the strategies that hedge fund managers employ. Every manager has a different strategy. These strategies differ greatly from the strategies of mutual funds, which the general public perceives as safer. The opportunity to make large amounts of money is less, but mutual funds tend to be a safer place to park your money. Alfred Winslow Jones laid the foundation for modern-day hedge funds, while John Meriwether and John Paulson paved their own ways. Alfred Winslow Jones is considered the “big daddy” of the industry, though he experienced a far-from-typical trip to the top as a hedge fund manager. Yes, Jones attended Harvard as his family did, but after graduation decided that none of these Ivy League career paths suited him. He traveled the world for a year, worked as a statistician for an investment counselor, but ultimately joined the State Department and was posted to Berlin. He returned to New York 4 years later. It wasn’t until 1948 that Jones turned his mind to Wall Street. He had been a graduate student in sociology at Colombia University, and with this new way of thinking, formulated that stock prices did not move in trends. Instead, stock prices fluctuated because of predictable patterns of investor’s feelings about the stock. This theory became the basis for Jones’ investing strategy. When the stock market rises, it’s right to assume that there is much investor optimism, continually pushing the market up. The key was to get out when this investor optimism would turn around. When all signs point to a bull market, Jones would not settle for putting only 100% of his fund into stocks. Instead, he would borrow money to buy more stocks in order to be long more than the value of his capital. When he began to sense a reversal in optimism, Jones would sell his stocks short, rather than liquidating his position. Jones said his strategy was to use “speculative means for
Cited: Mallaby, Sebastian. More money than God: hedge funds and the making of a new elite. New York: Penguin Press, 2010.