Hedgehogging
by Barton Biggs
May 2006
Captures the Zeitgeist
Efficient market theory is dead... long live efficient market theory. EMT is still revered in the hallowed halls of academia, of course. But so are Latin Vulgate and 18th century romance literature.
Books like Hedgehogging are doing their part to roll back the curtain and show how the investment world REALLY works. It is not a world of perfect information and rational utility maximizers, but rather a chaotic and messy one... a distinctly human one. Ego dominates. Fear and greed abound. Hubris plays a major role, as do lesser sins like herd mentality, groupthink, and yes, even plain old Stupidity with a capital `S.'
Wall Street is a harsh and unforgiving place—mostly a meritocracy, dominated by an eat-what-you-kill, winner-take-all culture. And yet, just as in the broader capitalist ecosystem, hidden niches abound. With the right measure of dumb luck, hacks, cretins and even the occasional moron can survive and thrive. Given that, the true masters of the universe will always be in a league of their own.
In his laid-back, conversational, anecdote-driven style, Biggs captures the zeitgeist. His vision of the investment world is the closest I have seen to raw reality. All the grisly details of sausage-making, or rather profit-making, are laid bare. Evolution is ugly, messy, and aesthetically intolerable but for one thing: the elegant and beautiful results it produces over the long haul. The same is true of the culture Biggs describes.
My favorite story by far was that of "Tim," the lone-wolf hedge fund manager with a strong taste for leverage, an antique-filled office in the leafy London suburbs, and a porcelain pig inscribed with Totis Porcis—the whole hog—on his Chippendale desk. The description of Tim's thought processes, capped by the simple but powerful analogy of "staying close to shore," is perhaps the clearest and most direct path I have seen into the workings of a top flight trading and investing mind. (With a man like Tim, the artificial distinction between trading and investing is clearly blurred, if not tossed out.)
Another guilty pleasure of Hedgehogging is trying to guess the real-world players hidden behind the pseudonyms. (Biggs does not use actual names in his anecdotes, presumably to maintain discretion and avoid lawsuits.) In their various guises, I'm pretty sure I spotted Michael Steinhardt, Steve Cohen, Victor Sperandeo, and Paul Tudor Jones. Maybe a few others.
Last but not least, the Jeremy Grantham recollection was truly inspiring. You have to love a man who takes the long view and sticks to his guns for years, even as the walls crumble and billions walk out the door, to ultimately see his convictions proven with such intensity, post-bubble, that GMO Advisors blew by the rest of the pack "as if they were standing still." Given the depth of conviction, time spent in the wilderness, and the scale of Grantham's swing—tens of billions—there is something Homeric in such a tale.
The book has its flat spots, as most books do. And apparently it offended a wide swathe of folks with some of the less than charitable, and maybe less than fair, depictions of industry events. Nonetheless, Hedgehogging was one of my favorite reads in a long, long while. Biggs is uniquely qualified to be an elder statesman for the alternative asset world, and the descriptive picture he paints is on par with Michael Lewis' Liar's Poker, or Adam Smith's Money Game. No small feat.
