1-Sentence-Summary: More Money Than God teaches us about the ins and outs of hedge funds, how those managing money makes a profit, and how you can learn from them and apply their techniques to your money management strategy.
Read in: 4 minutes
Favorite quote from the author:
In the world of investing, timing is everything. The hedge fund industry is one of the most competitive and profitable ways to invest. However, it is also one of the hardest to break into.
Throughout time, the most lucrative hedge funds managed to provide shareholders with profits by tapping into emerging markets, discovering groundbreaking start-ups, and timing their investments.
More Money Than God will not only explain their approach and show you how to do the same, but it’ll also let you in on some of Wall Street’s top secrets for investing.
Here are three of my favorite lessons from the book:
- Hedge funds capitalize on well-known market movers, such as investors’ psychology or bad news for a company.
- Hedge funds seniors experimented with various strategies before hedge funds operated like they do today.
- Hedge funds aren’t as dangerous for the economy as we were taught to believe – banks are.
Now, we’ll take each lesson one by one and learn the ins and outs of the hedge funds’ philosophy of investing.
Lesson 1: Before the 2000s, many hedge funds made money off of short-selling and the snowball effect.
You’ve probably heard of the most successful hedge funds in history. They were able to develop new approaches to investing before their contemporary rivals could even understand them. Naturally, there must’ve been something they knew while the others didn’t.
They knew how and when to sell. Hedge funds profit off of both unsuccessful and successful companies. They can short-sell stocks that are declining, which implies borrowing a stock at its current price, selling it, then rebuying it later when the price drops and giving it back.
They also profit from good companies that beat revenues and have consistent earnings. That’s when they go long on companies and sell after many years. Hedge funds are also selling after short periods of time, or trading companies. That’s when they use psychology to get ahead.
They know that investors are likely to buy a company when its stock price goes up and sell it when it drops, accelerating the pace of its growth or decline. Therefore, when the price starts to go up, hedge funds use this psychology and buy at the beginning of the rally.
This strategy is also called the “snowball effect”. Investors who watch news and earnings carefully know that this is a powerful tool for building wealth. These strategies were often used by the first hedge funds before the 2000s. Nowadays, there are many other methods to get ahead of the game.
Lesson 2: Different hedge funds had various approaches to investing before they became as popular as they are today.
Before hedge funds became as popular as they are today, there were many different styles of investing. Some of these strategies had more to do with what was happening in the market than others.
For example, Tiger (a fund created by Julian H. Robertson) looked at which stocks were more valuable in the long run, which is not something others did back then. George Soros bet on the fall of the dollar and won big in the 80s when no one thought the dollar would ever collapse.
Farallon held its traders accountable for losses too, not just gains. Back then, hedge funds were incentivizing employees with performance bonuses if the earnings were high, which made them place riskier bets than usual. Taking losses too led to moderate and considerate investments.
However, after decades of experimenting with different approaches, hedge funds found that a strategy focusing on short-term trading and diversifying was most successful in achieving high returns on investment. Long positions are still a large part of their portfolio, enough to cover potential losses and earn moderate returns.
Lesson 3: The general opinion wants us to believe that hedge funds are dangerous and that we shouldn’t be investing in them.
In the 1940s, investment was considered a high-risk activity, so hedge funds were created to take advantage of the volatility in financial markets and make money on both upswings and downswings.
At first, there weren’t any regulations for hedge funds, which meant investors could lose all their money if their investments didn’t go well. However, that also meant that investors could stand to make huge gains as well.
The problem with hedge funds today is that there still aren’t enough regulations to protect people from the downsides of irresponsible investing. The result? Economic crashes like the one from 2008 are very much possible to reoccur.
However, hedge funds aren’t the biggest threat. Banks and governments play a central role as well, mostly because they’re interconnected financially. If one of them fails, the other one does too. This is also known as the domino effect.
Hedge funds have the possibility to go bankrupt and governments have no obligation to intervene like they do with banks. Therefore, they’re much more likely to pay attention to our investments with them.
It looks like the link between hedge funds and economic catastrophes is not as strong as we were taught to believe, is it?
More Money Than God Review
More Money Than God delves into the philosophy of investing that hedge funds developed from their beginnings till today. By learning how to buy stocks that have a higher return potential or bet against currencies or bad investments, you too can learn how to navigate markets and generate higher-than-average returns.
These strategies have been adopted by many other investors in recent years. So there is less demand for hedge fund services than there once was. So, what is stopping you from becoming your own money manager?
Who would I recommend the More Money Than God summary to?
The 23-year-old trader who wants to make more money off of their trades. The 30-year-old person who wants to capitalize on their savings. Or the 39-year-old aspiring hedge fund manager who wants to learn more about the job.