Friday, October 12, 2018

Friday Feature Book Review: Black Edge Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street by Sheelah Kolhatkar ブラックエッジ ――資産1兆円の男、スティーブ・コーエン物語 (ウィザードブックシリーズ)

How do you become a Billionaire Hedge Fund Manager? What path have others taken to get to that point? The story of Steven A Cohen, and the growth of SAC  & Point72, is an amazing one. Information is key, and there are levels of it, but talent is also needed. There are many things to learn from his financial career experience. The more you learn about him, the more you see how he is very similar to Bobby Axelrod in Billions. However, you also learn how they are very different. One may be an inspiration for the other, but they are not clones. In no way are they at all interchangeable. Both are clearly different people.

Black Edge is a term meaning top grade information about a stock or an investment that is a pure money maker in the right hands. However, it is also often illegal. Grey Edge is a term for information that is not public but could be found out by indirect means, and often still legal usually. White Edge is information that is in the public domain, and generally legal, however how you put it together can be very useful and never before figured out. It is often a story behind the numbers that bright people can figure out.

Who is Steven A. Cohen? and why was he at the center of a major investigation? In an industry driven by information, SAC was just one of many hedge funds looking for an edge, an information edge to make more money from trades. Where is the line of legal vs illegal? This is really at the heart of the story. 

There are many great details discovered around the hedge fund industry and the people in them. A lot of facts were gathered clearly. The author however, was an analyst at a hedge fund, and this comes out in how clear and well written many of the stories and people are in this book. It is not just a great story, it is really well written as a book, and that makes the story that more more impressive.

What I learned the most about Steven A. Cohen was how clearly talented was from a youth. He was driven as a kid, perhaps being one many kids, forces you to stand out. He grew up OK, but had wealthy grandparents, and always tried to do better than all around him. He wanted to escape his roots, and move up in the world early on. It seems this was how he approached many things in his life. There was often a goal, and that goal was about making money to leverage it into a better life in finance.

The biggest surprise for me though was the natural talent that he had with observing price movements. Reading the ticker tape was a deep seeded talent that allowed him to see price action like few around him. It set him apart because he studied stock prices in newspapers early, and had a natural comfort with how prices would move and could recognize patterns. The only other person I have read similar abilities about was the legendary short seller Jesse Livermore, the boy plunger. He made a US$100M+ fortune by selling America short in 1929. That is quite a benchmark and makes for a billionaire level of talent in this day and age.

The Top 3 Takeaways from this book that impact any reader are:

1) Even the biggest hedge fund players who reach Billionaire level wealth, often start middle class with a very deep seeded desire to succeed from an early age.

2) The ability to make money in the markets is a clear skill. However, being smart in financial markets does not mean you are smart in all parts of life. Emotional decisions on a spouse can be poorly made for odd reasons.

3) Becoming a successful money manager brings capital, that forces you to change and evolve. The more capital you run, the more difficult it gets to maintain high returns. You have the change and mature your approach over time if you want to run major money in size.

The book is full of many details that cannot be covered in this review. The author Sheelah Kolhatkar, is a former hedge fund analyst herself. This really comes across with the understanding and level of detail that I really loved. What made the book enjoyable and easy to read though, was the quality of writing. The writing itself is smooth and engaging, always high in style and quality. This was very deeply researched and the details on the FBI agents and their motivations are excellent. In fact, all of the hedge fund ecosystem participants are really well described in motivation and background. You can recognize others like them and common themes right away. I highly recommend this book to anyone who likes to seek out answers about hedge funds on a global scale.

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