BOOK REVIEW
An American Hedge Fund
During the inter-war generation in the Western democracies, the wealthy elites that arose created a generation of wastrels. That was the basis of the first hit television series starring Hugh Laurie (House), Wooster & Jeeves (BBC). Bertie Wooster (Laurie) was a young man who lived well on an allowance from his family money administered by his stern aunt. Jeeves, the practically omniscient “gentleman’s gentleman,” protected Wooster and his friends from themselves.
Apparently, we have created a similar group in the United States, and its spokesman is Timothy Sykes. In his self-published autobiography, An American Hedge Fund, Mr. Sykes tells his story of how during his high school years he became a day trader using his Bar Mitzvah money. By riding market volatility like a barroom mechanical bull, he turned $12,500 into a million or so. He managed to graduate from high school, even though, as he tells the story, he spent more time using the school’s Internet pipeline to trade than he did in class. He attended college at expensive private universities. He does not exactly admit that his parents were paying his living expenses while he was dodging class and day trading, but that seems to be the gist of it. He migrated to Tulane from the Northeast, and rather than majoring in either economics or business, he majored in philosophy. Throughout, his autobiography makes him sound like wastrel.
After college, and especially after day trading became too difficult for him to continue to derive profits, he engaged in short selling, and especially in the world of what he calls “micro-cap” stocks. He tried to get others to allow him to invest their money in what he labeled a “hedge fund,” but he ultimately failed to attract significant investors.
Sykes claims in his book that he failed to attract investors due to marketing restrictions on hedge funds. That has not stopped growth in that industry that has deserved so much comment, but it apparently did stop him. So, the title of his book is apparently a marketing ploy.
Like all authors, Sykes revealed his true reasons for failure: he had no true business education. He read hundreds of business books and, it seems, is claiming to have learned finance by reading in a log cabin with a candle. But he had no discipline or interest in actually taking classes in finance.
Another reason Sykes failed to create a hedge fund, and the reason he was nothing more than a day trader with an Internet account, is because while he was in high school and college, he did not understand what investing really meant. He thought it was a game, like a video game, or more like video poker. He saw the impact of the people cheating at the game: pump and dumpers, stock spammers, and chat room lounge lizards. Many of the stocks he worked with were nothing more than an idea looking for capital, or worse, just a scam. Sykes never saw the entrepreneur. Sykes never saw the small business. Over sixty thousand businesses in central Oklahoma alone employ five or fewer people.
Sykes says that he “immediately” (his own word) saw a trading opportunity in the destruction and death that rained on New York when airliners were turned into cruise missiles on September 11. Likewise, he saw the tsunami that destroyed Asia in December 2004 and “quickly began to ponder” its impact on the markets. Like the typical wastrel, Sykes has no feel for the businesses destroyed by short selling, no feel for investors cheated by pump and dump schemes, and no appreciation for investing as a means of saving the product of work for expenditure at a later time. The only thing that saved Sykes from consuming everything he made was his obsessive focus on his own net worth.
Sykes described his book as entertainment. That was not, as I first thought, because Sykes wanted to avoid liability for any trading lesson he might have inadvertently taught in the book becoming a trap for the unwary. Rather, as the closing pages of the book reveal, he now thinks of himself as a mini-celebrity and as a sort of financial entertainer. He has tried to cloak himself with a cause: freedom of speech for hedge fund managers (even though with the growth in the industry, it is clear they are not finding advertising restrictions too limiting).
Sykes is a wastrel. For that reason, his book and life is entertaining. But, it is not terribly educational, nor is it any sort of real lesson. I will put his book on the shelf next to The Radioactive Boy Scout, The True Story of a Boy and His Backyard Nuclear Reactor, by Ken Silverstein. They have much in common.
