More Money Than God summary

Are you concerned that hedge funds have a little too much in common with poker? How do these guys know, you might be wondering, whether stocks will rise or fall? How can they be so sure that they won’t lose all their money on a bad bet?

Of course, all stock trading involves an element of gambling, since no one can ever fully predict the outcome of a trade. But hedge fund portfolios are diversified, which means they aren’t actually very risky for investors. Traders assemble diverse portfolios by buying “long” and selling “short,” a strategy that protects against market swings.

After A. W. Jones famously struck gold with his “hedged fund” in 1949, others followed suit. And one especially notable early hedge fund was Steinhardt, Fine & Berkowitz.

Although founders Michael Steinhardt, Jerrold Fine and Howard Berkowitz mostly followed Jones’ original model, they were the first to do it on a massive scale – which meant that they earned more profits than anyone had before.

Commodities Corporation was another giant in hedge fund history. The firm, which was founded in the early 1970s, further improved upon A. W. Jones’s original method.

It did this by conducting deep analyses to foresee market changes. The company’s president, F. Helmut Weymar, was a scientist at heart, so it’s no surprise that he took a scientific approach to finance.

Meet the hero of the next chapter in the history of hedge funds: Quantum, a firm started by George Soros in 1973 (though initially under a different name).

Quantum achieved its big successes a decade later, in the 1980s, at a time when currency seemed to be stable. It was a period of economic equilibrium, and the dollar in particular was thought to be safe from speculations and crashes.

The year 1980 saw the birth of another influential hedge fund firm, Tiger, founded by Julian Hart Robertson.

Tiger was started at a time when most traders didn’t actually care that much about stocks. Today, most people understand that when you’re trading on the stock market, it helps to have insight into which stocks are likely to become more valuable.

Another important firm was immortalized in hedge fund history: Farallon, founded by Tom Steyer in 1985.

Farallon’s main contribution to hedge fund practices was to make traders accountable for losses. Before the firm came along, traders were primarily motivated by performance fees, but these could have a negative effect on a hedge fund’s overall profits.

In today’s United States, you don’t have to be a politician to get into politics, you just need massive influence – which most hedge funds can definitely claim.

Why are they so influential? Well, hedge funds have the power to invest enormous amounts of money fast, and that can devastate an entire country’s economy.

Since hedge funds pose an enormous threat to governments and economies all around the world, you might be asking yourself why we allow them to exist at all.

It’s worth remembering that financial risk is inherent to all kinds of institutions, not just hedge funds. And like any other firm or organization, hedge funds take various different forms: Some are nice guys, and others are vicious, but neither type characterizes the whole industry.