More Money Than God

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.

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.

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.