Saturday, July 30, 2005

Confessions of a Street Addict, Part I

I took a break from Hayek to read CNBC personality Jim Cramer's Confessions of a Street Addict (which I found out about from HedgeFundGuy). It covers Cramer's entire life, but focuses on the years 1988-2000 in which he managed a hedge fund and founded the dotcom start-up Particularly gripping is the account of Fall 1998 in the aftermath of the Long-Term Capital Management collapse. I won't give away any of the details, but the books is a quick read and incredibly entertaining.

Hedge funds are similar to mutual funds, but managers have essentially unlimited freedom. Also, only "accredited investors" may put money in. An "accredited investor" is anyone with a net worth over some figure in the millions. (Cramer points out that, since hedge funds usually do far better than mutual funds, this particular regulation doesn't do much to help the middle class.) His job is to make money for rich people and he is a real bastard. Yet you sympathize with him: he doesn't really want to be a bastard. You root for him in the end. At least I did.

What motivated Cramer? Sure, there was money. After he had to live out of his car while he was a struggling reporter he vowed never to be in that position again. But, my take on it is this: running a hedge fund is a creative pursuit like any other. It may have to do with making and losing vast amounts of money in short periods of time but it's really just like any other activity pursued with passion, be it sport, art, science, piety, whatever. So I'd like to think that, rather than the pursuit of wealth, it was the drive to be excellent that motivated Cramer. (He was very successful, netting ~25% annually.) As the teacher in Mad Hot Ballroom said, the key to success is picking something you do well and devoting yourself to it.


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