A Hedge Fund Life
A big goal of mine is to lift the veil on how hedge funds research stocks & make money. My thesis is that there are teachable, repeatable processes and specific mindset orientations that lead to better investment results (no matter where you are investing).
And the incredibly cool part, to me, is that the most junior person at a hedge fund can often have the biggest impact. Identify, research & pitch a stock that goes into the portfolio and goes up 150%.
You're a hero. You get accolades, and you get paid incredibly well. But there are dark sides to the life as well. Intense pressure. Anxiety, depression, burnout, and at core, a loss of humanity. I feel obligated to provide a balanced view of life, which I will attempt to do in this Blog.
EPIC SHIT
Don't get me wrong, the hedge fund life can be epic. I was glued to HBO's Billions when it first came out. Exclude the Hollywood dramatized overt insider trading, and the show actually captured the zeitgeist of the life pretty well.
Before I even started Day 1 at my first fund, I was whisked away to a fancy resort on a private jet for 3-days of "team-building". During my first week on the desk, my Jefferies salesperson "Uncle" Mike Spataro called me and told me anytime I wanted to go to ANY game or concert, just call him.
I did, he took me to a Knicks game, and at dinner he ordered one of everything on the menu. This was an eye-opener from optimizing my Seamless account in banking! The same Uncle organized a 3v3 basketball tournament for his 6 top clients on the floor of Madison Square Garden.
It was a pinch-me moment. And those were just the perks, the core job was often even more cool. I covered SAB Miller and flew to South Africa for a weeklong brewery tour, visiting Joburg, Capetown & Durban. Each night after the meetings, the local beer reps would take us out on the town.
It was hard to not feel like royalty. I covered European consumer staples and went to Paris to meet with the luxury goods players (even with the 20% investor discount, I still couldn't afford anything at LVMH...). I flew to Miami to visit Burger King, and they took us into their test kitchen to try the new products (and told us a funny story about how the Japanese investors, out of politeness, finished every bit of all 8 burgers...). These were such fun experiences for a 23-year-old kid from rural Idaho.
The compensation was life-changing. Growing up, my father was a steel worker and my mother a housekeeper, between them making no more than $40k. Money was always tight, and always a source of conflict in the family.
That experience sparked in me an intense desire to make enough money to have a nice life and raise a family without that intense stress. I cried, yes literally cried, and hugged my CIO, the first time I received a 7-figure bonus.
While I'm a million miles from a hedge fund billionaire, I saved, invested & budgeted enough that now I have the ability to explore other passions in my life (like Fundamental Edge, which currently has highly negative FCF margins...).
So I look back at my hedge fund life with insane gratitude. Yet I shiver at the thought of going back.
I hung up my b-unit last summer, and there is not enough money for me to go back to managing money the way I was. Which is an interesting dichotomy, right? On one hand, it was an epic life working with insanely smart, talented people, accompanied by very good compensation. But on the other, it made me deeply miserable and many people I speak with feel the same way.
ANATOMY OF BURNOUT
"3 months feels like 3 years"
"Just one more big bonus and I'm done."
Heard this? I have!! I've been there. The hedge fund life for me had two sides of a coin, elation & depression.
The Buddha talks about the concept of duality. Without hot, one cannot truly experience cold. And for every high, there is a corresponding low.
Even from the early years, I felt like the job lifted me to the absolute highest of the highs, then threw me down on the mat to the lowest of lows.
The stock market is an inherently unpredictable, violent beast, out for blood. It cannot be tamed, and won't bend to your will. The most experienced, enlightened investors learn to ride the wave, staying centered through adversity. But I never really did.
Julian Robertson would tell his Tigers "If you bleed easily, you won't do well here". I lived and felt every high, and I lived and felt every low. I bled easily.
The stakes are so high at a hedge fund. Win and you make millions, lose and you're out of business. Which creates an environment that is incredibly high-pressured. While I worked with some wonderful, empathetic people, in general, the environment is driven by the ruthless pursuit of performance without little consideration for feelings. That was hard for me.
THE GRIND
The thing about public markets investing is that the grind never ends! The market doesn't care that you are on vacation or getting married (nor do your bosses). You must answer the bell - build models, identify ideas, attend conferences, analyze earnings, and REPEAT, REPEAT, REPEAT. Until you die (or retire).
And for perfectionists, oh man. You will almost never hit the trade exactly right. It's organized chaos. Something is always going wrong, you are in crisis mode pretty much all the time. It can be exhausting.
BREAKDOWN
Around 2015 Kiril Sokolof started writing about adrenal fatigue in What I Learned This Week. It really resonated with how I was feeling. I was exhausted all the time, ballooned up to 280 from 230, was using food as a crutch, and drinking WAY too much Macallan.
I would work 6 days a week, during the week 7:30 am-9:30 pm, and felt I had too much work to do to hit the gym for an hour per day. I started to have some really severe stomach issues, caught bronchitis, and couldn't shake the cough for 6 months. I was clearly sacrificing my health.
My only respite was collapsing on the bed when I got home, sleeping most of the day Saturday, and drinking myself into oblivion to temporarily manage the stress (which compounded the issues when I sobered up).
Then I had kids! And the pressures of life at home compounded my stress. Thinking I needed a change of scenery, that's around the time I left Maverick to take my first PM job.
Enter the biggest drawdown of my life, epic failure, and existential crisis. And you know what? It oddly was the best thing that ever happened to me. The insane failure taught me that I could really screw up, and I would be ok. I wouldn't die,
I could still feed my family, and my wife still loved me. So for anyone going through a challenging time on the buy side, here is my advice:
IT'S ALL GOING TO BE OK. Failure feels like death in this industry often. It matters, yes, but some things matter more.
DON'T DO ANYTHING STUPID. Don't sacrifice your health. Don't break the law. And certainly never think about hurting yourself (if you are, please DM me. I'm here for you).
THERE'S LIFE OUTSIDE OF HEDGE FUNDS. The HF industry attracts some of the most motivated, talented people in the world. If you do fail, or burn out, you know what? It's ok. You have the raw abilities to be successful at whatever you do. It's just a job. Yes be great at it, but don't take yourself so seriously.