The book is made up of 14 Chapters, which track the history of hedge funds both chronologically and stylistically. The first hedge fund to be set up was a long/short by A.W. Jones. From there the web spins.
What Mallaby does really well is to give plausible reasons for the success the different styles of hedge funds had at the time they were conceived. Always falling back upon the tenants of efficient markets, Mallaby goes on to illustrate how the hedge funds managed to find a caveat and milk the market for what it has. The crowding effect then usually takes over and reduces the returns so established.
The book is in part also written as an apology for hedge-funds and a defense, especially in the light of the 2007-onwards financial crisis. Mallaby’s book will definitely be the next classic in Market Lore.
Here is a synopsis of several chapters that come immediately to mind:
Chapter 13, The Code Breakers. For any market participant Medallion is and always will be a sort of Camelot. If you don’t believe me, just check out their returns here. Note the scale is logarithmic!! Chapter 13 provides new perspectives and old stories on the inner workings of the fund, and provides some very interesting food for thought! A complete must read, as it puts most of the other quantitative funds into perspective.
Chapter 6 – Rock-and-Roll Cowboy. Paul Tudor Jones has always been one of my favorite traders and role models. If you get a chance to see the PBS production “Trader” do so. It makes clear the inner workings of somebody who is focused and successful.
Chapter 9 – Soros versus Soros. I never could make much of Soros the investor and man. Indeed he has a remarkable history, however, his style is not necessarily one I am able to appreciate. This chapter has brought him into a much closer and more human perspective.
One drawback was the lack of mention of some equally interesting characters: Richard Dennis, who did not come out of Commodities Corporation, and was a successful trend trader, and arguably spawned more funds and fund managers than Commodities Corporation did. Then there is Vic Niederhoffer. Though he blew up twice, he has produced some great luminaries, such as Toby Crabel, and Monroe Trout, arguably both implementing Medallion-like strategies initially, before probably moving off to some other type of investment strategy. Many others come to mind as well, for instance Alan Howard, who also came out of the Salomon mold, and is by many one of the best traders around.
My guess is that to include all these in a single tome would increase the size of 400 pages to in excess of 1000, and require a multiple amount of effort on research. Mallaby obviously must move on with his life.
On a parting note, this book must be read in conjunction with Market Wizards, Updated: Interviews With Top Traders.
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