Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market

One of the things money can't always buy is access to the great minds. Lets say you want have an 1 on 1 with Jim Rogers(the co-pioneer of the Hedge Funds concept). Will you be able to do it? Maybe ... maybe not. And if we expand the problem to 10+ top Hedge Fund minds ... the problem becomes even more challenging. However, instead if we find someone who has access to all these folks and can proxy for you? Won't that be neat? That is exactly what Steven Drobny has done in this book. He has been able to rein in some of the greatest & successful minds in the Hedge Funds arena and ask them interesting & revealing questions relating to their trading strategy, best trades, worst trades and the other lessons they learnt from their failures/successes. As expected, this book is written in Q & A format. The author has done an excellent job of organizing and laying out the book which moves in gradual progression. The responses from the folks are equally simple and straight forward without the use of complicated financial language(except the overuse of long/short gamma/alpha) or financial models. In my opinion, the most interesting and revealing question/responses were the one relating to the biggest mistakes and the lessons learned from them. I would highly recommend reading the responses from the various folks on this particular question. It will be worth a lot. Some of the key insights/views I found interesting ... * Just being right does not matter. Being right at the right time does. * Be fluid in your decisions. As fact changes, change your views too. * If you make agressive bets, then make sure that you defend your investment with good hedging strategy. * Cut your losses. Ride your winners. It definitely is a must read ... -Sachin

The more things change, the more they stay the same. Inside the House of Money is an amalgam of perspectives from about twenty of the world's most successful "global macro" hedge fund players in the vein of similar books like Barton Biggs' Hedgehogging, Schwager's Market Wizards, or Elder's Entries and Exits. The players range from home office hedge fund managers to chief treasurers of Barclay's to reknown bow-tie wearing commodity market demagogues. New Jersey's governor (a Goldman Sachs alumnus) even makes an brief appearance in this book. Of course none of these folks are like us, as inside the House of Money they deal in highly leveraged $100 billion positions in esoteric financial exotica like swaptions and steepeners. Readers whose experience may be limited to discount brokerage stockpicking will quickly find theselves submerged by the quasifantastic instruments hedge fund players flip almost effortlessly. Drobny sometimes eases the impact with explanatory side bars, and price graphs illustrate many good (and bad) market bets. Nonetheless, feeling a certain amount of disorientation when first entering the House is only to be expected. When these trades go wrong, they are Oh So wrong, as revealed in many personal reflections throughout the book. Yet given their failings they have managed to survive global macro, and that much makes them remarkable. We hear in the news with alarmingly increasing frequency of one fund after another "blowing up," and reading Drobny's interviews with Wall Street's elites you can see how nothing more than plain human pride, hubris, and an unwillingness to recognize one's mistakes is to blame. For every successful trader, there are countless mere mortals who must fall by the wayside into ruin. A subplot throughout the book, if not the author's stated goal, is to answer the question "What is global macro?" When every story has been told, you can rule out domestic investment and microeconomic analysis, and in those leftovers that make the banquet look like only an appetizer is a wide world of different kinds of investments which let hedgies do nearly whatever they please. The book is best regarded for retelling the financial history from the collapse of Bretton Woods in the seventies to the Asian currency crisis of the late nineties. The introductory chapter concisely hits on a number of financial events that shaped the success of some, and the losses of many. These events (and others like them) recur continuously in Drobny's successive interviews with participants who traded them and lived to tell about it. We see periods of low volatility regularly awaken with a tectonic upheaval, and therein we glimpse tomorrow's dangers and opportunities. Drobny calls on Dr. R. Lee Thomas III to conclude the book with a short qualitative discussion into the probability of making multiple independent bets, the classic "hedging" theory that reduces risk. Readable and contemporary, Inside the House of Money shou

While working on the book Steven, the author, learned and shares with the reader through a series of interviews, "how the best minds in the business think about risk, portfolio construction, history, politics, central bankers, globalization, trading, competition, investors, hiring, the evolution of the hedge fund business and a variety of other details." The book provides an inside look at the thoughts and actions of many great financial minds. For example did you know that Maynard Keynes (the father of modern macroeconomic theory) was completely wiped out by a margin call during the commodity slump of 1929 or that George Soros's Quantum Fund averaged over 30% for it's 31 ½ years existence and that $100,000 invested in the fund at inception was worth $420 million 31 ½ years later. Jim Leitner of Falcon Management who claims to have taken $2 billion out of the market so far in his career says he "reads a tremendous amount of books and papers" and feels, "developing a network by going out and meeting groups of intelligent people is very important". He also recommends reading the Economist. Jim says, "The Economist had something on Nigeria, stating the average beer consumption had dropped from 34 liters to 3 and then rebounded to 4. That signaled to me that there must be a trade there. There is something going on when beer consumption drops 90% in a hot country and then starts to rebound. We started buying Guinness of Nigeria and its gone straight up over the last 3 years". Peter Thiel, the former CEO and co-founder of PayPal who runs Clarium Capital Management was given this advice from a major venture capital partner when asking about the industry, "The best way to get into venture capital is to make at least $20 million by starting a company and selling it. Take that money and invest in other companies as a VC." He would give the same advice today. Then there is Jim Rogers, the co-founder of the Quantum fund in 1969, and author of, Investment Biker, Adventures in Capitalism and Hot Commodities, who lives in a Victorian mansion overlooking the Hudson River on the Upper West Side of NY that he bought for $105,000 and is worth $15 million today. He's so hot on commodities he says, "one day lumberjacks and farmers may be on the cover of Fortune magazine" and thinks in the next decade, "oil will be at $150 a barrel and they will be drilling for it on the white house lawn and cotton will be $4 and they will be planting it in central park". He is so bearish on the dollar he believes it can fall to half the value of the Euro. He says, "the pound sterling was once the worlds reserve currency and it went down 80% from top to bottom. The dollar went up 400% against it." For market enthusiasts this book is tons of fun and you sure as hell pick up real insight as to the thoughts of some brilliant traders. I may pull more of my favorite parts that I'd like to remember and post them on my blog. By Kevin Kingston, author of: A 20,000% Gain in Rea

Finally a book worthy of replacing my tattered, well worn copies of Market Wizards. As a hedge fund manager and avid reader of trading books I am pleased to say that Steve Drobny's "Inside the House of Money" is now required reading alongside the legendary "Reminiscences of a Stock Operator". I suspect many aspiring traders will read the interviews over and over discovering additional glimpses of wisdom with each passing read. While many of the managers stand diametrically opposed in terms of trading methodologies and markets, it is evident that they share a great commonality in the their ability to generate innovative ideas and weigh scenarios which often go unnoticed. Rather than picking up nickels in front of bulldozers these traders are scooping up 100 dollar bills in front of slow moving tricycles. Brilliant.

If you have any investments in stocks, bonds, commodities, currency, real estate, mutual funds, hedge funds or anything else you should read this book. You will be blown away, and you will learn more about what really happens in the world of international finance from some of the most successful and audacious traders in history, many of whom have never spoken this openly about how they do business. Why should you read "In the House of Money?" Because if you have any investments, no matter how small, you are competing against these guys and many like them, and they are way ahead of you and most everyone else in the investment business. They get in early, before anyone else, and they get in big. They make money off of you and me--we get in small and we get in late. These guys have known for decades that the global economy - "global macro," as they call it - is where the money is--big money. They only make a profit by being ahead of the curve. How do they do it? It's in the book. These guys are smarter than us, and they've now spilled the beans in a way that has been extremely well-constructed and explained by the author, even for a casual investor (such as myself). It's a fascinating read, even if you don't care much about investing: a riveting, revealing look behind the scenes at the people whose business is to know the world, economically, socially, culturally, and politically. More than money, they trade in knowledge. And knowledge is power. Here, they share their knowledge with the rest of us. They turn knowledge into profits, and, by learning from them, so, perhaps, can we.