Barton Biggs passed away on Saturday after a short illness. Every aspiring hedge fund manager should read his book Hedgehogging, which was published in 2006. You can find it in the book store above. Having just skimmed my marked up copy to prepare for this post, I am compelled to read it again. I launched my fund four years after I read it.
In Hedgehogging, among other topics, Biggs writes of the trials and tribulations of starting a fund, the difficulties of shorting (the hedge in hedge fund) and he reminisces about how he appeared as a dunce to the young, upstart managers (and some of his fund’s investors) because he warned repeatedly in the late 1990s that the internet bubble was going to end badly and so he refused to participate in it.
To many young guns he was past his prime, out of touch, should be put out to pasture, he did not understand that “it was different this time.” And, of course, the knowledge that he accumulated over the years–wisdom–turned out to be absolutely correct in the end. Unfortunately for many fund managers, value managers in particular, the bubble inflated for too long and it put them out of business as their investors redeemed to put their money in the latest, hottest fund.
One of the most insightful parts of the book for me was his discussion of the value of gold and other jewelry. As a value investor, I find it hard to appreciate precious metals and stones because I find it hard to place a value on them. Their value is almost completely subjective. Biggs drove home the point that they are literally lifesavers in the most distressed of periods–e.g. the get-out-of-Nazi-Germany kind of periods when the only assets that you can keep are the jewelry you can carry and hide on your person.
Unfortunately, I strongly disagreed with Biggs in the last chapter, so it stayed with me and allowed me forget the value of the previous chapters. Biggs defended Keynesianism with the kind of vigor reserved for zealots, as in this sentence (emphasis mine), “To be truly taken as the economic savior of civilization, Keynes needed to present a conventional face to the world” which discussed his marriage to Lydia. Biggs attributes the end of the Great Depression to Keynesian economics.
I suspect that when the current debt crises that are cascading in practically every western economy are finally resolved, objective minds will have an entirely different view of Keynesian economics. It was Keynesianism that justified large government spending after all, and a sheep-like political class was only too happy to use Keynesianism in their re-election bids. There is no easier way to get re-elected than to spend taxpayer dollars (not your own) on your constituents. Keynesianism will have had a century-plus run, but century-plus runs are not uncommon for many failed ideologies. The latest century-survivor to fail is communism, which was considered by many in its day as more economically efficient than western capitalism and therefore unstoppable. It was considered efficient in the west in part because of Keynes.