More Money Than God

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Introduction

• Alfred Winslow Jones started the first hedge fund at the age of 48
• Clifford Asness
• An unassuming footnote in the efficient-market view became the basis for a hedge-fund legend
• genius does not always understand itself
• The acknowledge of the limits to market efficiency had a profound effect on hedge funds.
• By flattening out the kinks in market behavior, hedge funds were contributing to what economists called the "Great Moderation".

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1. Big Daddy

• P20, 2nd, Money might be an abstraction, a series of numerical symbols, but it was also a medium through which greed and fear and jealousy expressed themselves; it was a barometer of crowd psychology.
• P22, 2nd, By the time the Fortune essay appeared in March 1949, Jones had launched the world's first hedge fund.
• P24, 1st, example for how hedge fund beat traditional investors
• P25, 3rd, In sum, the hedged fund does better in a bull market despite the lesser risk it has assumed; and the hedged fund does better in a bear market because of the lesser risk it has assumed. The calculations only work only if the investors pick good stocks; a poor stock picker could have his incompetence magnified under Jones's arrangement.
• P26, 1st, By selling stocks that rise higher than seems justified, he can dampen bubbles as they emerge; by repurchasing the same stocks later as they fall, he can provide a soft landing. Far from fueling wild speculation, short sellers could moderate the market's gyrations. It was a point that hedge-fund managers were to make repeatedly in future years. The stigma nonetheless persisted.
• P27, Jones pointed out that the velocity of a stock did not determine whether it was a good investment. A slow-moving stock might be expected to do well; a volatile one might be expected to do poorly. But to understand a stock's effect on a portfolio, the size of a holding had to be adjusted for its volatility.
• P27, 3rd, Years later, this distinction became commonplace: Investors called skill-driven stock-picking returns "alpha" and passive market exposure "beta".
• P28, 3rd, "Portfolio Selection" theory by Harry Markowitz:
  • the art of investment is not merely to maximize return but to maximize risk-adjusted return
  • the amount of risk that an investor takes depends not just on the stocks he owns but on the correlations among them
• P29, 2nd, "Separation theorem" by James Tobin: an investor's choice of stocks should be separate from the question of this risk appetite.

Has to return book on 2022-04-09