Date: August 08 2012
Barton Biggs was to the money world what Gore Vidal, who passed away last week, was to the literary world.
Biggs was a top hedge-fund manager, and I'm thumbing through the pages of his great book Hedgehogging and noting the pieces I've underlined: such as his old saw on renting stocks you don't own and selling them, expecting you will be able to buy them back at a lower price, in other words short selling. ''He that sells what isn't his'n must give it back or go to prison''.
Short-selling hedge funds were the demons of the 1990s, but let's consider a present demon: those vampire pipes scalping small investors' buy and sell orders.
The ASX has electronic tubes locked into its trading system. Big financial institutions pay the ASX substantial fees for enabling them to suck profits out of your buy and sell orders. Their front-running profits are made at your expense.
Some local retail brokers have issued statements that they are not involved. It could be worthwhile contacting your broker asking if the firm is participating in such vampire-style algorithmic rip-offs.
If they are, change your broker to an honest broker who does not clip your trades. Note: if your broker is a subsidiary of a big financial institution you are probably being clipped off!
There are many ways, including word of mouth and online media, to reveal brokers ripping off their retail customers.
Just before he died last month, Biggs was outspoken in his condemnation of algorithmic strategies. He was a value investor using classic fundamental analysis. His father, a banker, would not discuss investing with him until he had read Security Analysis by Benjamin Graham and David Dodd, first published in 1934.
In his commentaries, Biggs wrote about his friend the plumber who he found cleaning out the toilets of his vacation home in Sun Valley, Idaho.
The plumber told him he was through flushing out the toilets in rich people's homes and had decided to become a share trader.
The down-to-earth plumber became a feature of Biggs' commentaries. His main advice was: ''Buy on dips''. If we only had the courage, we could take the plumber's advice and invest in stocks right now.
Biggs' plumber, who turned out to be fictional, believed that trading was more about human nature, the interplay of greed and fear, than tips.
I must have read Hedgehogging early this century because I have a note to myself on one of the pages: ''When the NAB lost billions in Forex (foreign exchange trading) who were the winners?''
Biggs ran his own highly successful hedge fund but was critical of them. ''The golden age of hedge funds is over.'' Their intensive research has reduced market anomalies. ''You greedy hogs are in the process of killing your own golden goose.''
After the great bull market of the late 1990s and the carnage of the bubble bursting, professional investors were viewed with distain. ''They are disparaged as overpaid and motley crews who have promised much and delivered little.''
I remember the boom periods of the late 20th century with nostalgia. During these booms Biggs refers to ''Germans with bulging eurobellies, mingling with bloated Arabs, their handshakes as cool and clammy as snakeskin''.
He speaks of former portly ex-diplomats, permanently deformed by self-importance, exchanging distinguished lies with former investment bankers and their ''bored wives and sleek and skinny girlfriends, social X-rays suffering from anorexia richiosa babble about dude ranches and plantations''.
He speaks of ''Tigger'' a momentum investor, probably with other people's money. ''I like him [because] he truly believes his own bullshit and doesn't pretend to be anything other than what he is - a stock jockey''.
But the gem of Hedgehogging comes from an earlier book, a favourite of mine, The Money Game by Adam Smith, a pen name for George Goodman, one-time member of the editorial board of The New York Times and editor of Esquire.
The book features the Great Winfield fatally wounded in a high-tech bear market. He hires three 29-year-old kids who believe in the market and buy garbage stories because they are too young to remember bad times.
He names them Billy the Kid, Johnny the Kid and Sheldon the Kid. They call the Great Winfield ''Sir'' and come to attention when he addresses them. ''Aren't they cute?'' the Great Winfield says, ''like teddy bears. It's their market.
''The Great Winfield beams with pride. 'See? See? The flow of seasons: Life begins again. It's marvellous. My boys! My kids!' ''
Go into any broker's office these days and you'll find empty chairs. If you are under 29, your time will come. Full of joy and ambition, you'll occupy these chairs as the next boom takes off. I wish I were you. Good luck!
■ Follow me on Twitter@BillHarcourt or email me firstname.lastname@example.org.
This material is subject to copyright and any unauthorised use, copying or mirroring is prohibited.
[ Canberra Times | Text-only index]