Book Review: Black Edge

“Black Edge” written by Sheelah Kolhatkar is about insider trading prevalent at US Hedge Funds and how the US Justice Department attempted to curb and prosecute the perpetrators.

The Book describes really well the hyper-competitive world of hedge funds where super sharp guys are trying to beat each other and the market and would go to any lengths possible to make that happen.

As the Book explains, there are 3 types of “edges” :

  • White Edge-Readily available information that anybody can obtain and hence not worth much e.g. research reports,public filings etc
  • Gray Edge-Non-public information which may or may not be material. e.g. off the cuff remarks by CFO in an investor meet, or off hand conversation with shareholders by CEO at a AGM etc
  • Black Edge-Non-public information that was obviously illegal and very material e.g. Companies earnings numbers before they are released, or knowledge of the company getting a big order etc

As the Book succinctly puts it, “The Hedge Funds were all playing a game, trying to get the most valuable information they could without getting into trouble.Edge was the water, and they were swimming in it”

After the 2008 financial crisis, the public was outraged at the excesses of Wall Street and wanted some action taken.

The SEC,US Justice Department and the FBI started their investigations and the Book chronicles the struggles  and challenges of the law enforcement agencies.

For the first time, Wall Street was investigated like the Mafia-with wire taps,recording phone calls, flipping witnesses etc

The primary target of the investigations was Steve Cohen of the SAC.He had a great way of getting insider information without getting into trouble.

He had weekly calls with his traders/portfolio managers.In the calls, they were supposed to give their best ideas with a conviction scale of 1-10.That way, he could get access to the best trading ideas with a “Don’t ask,Don’t tell” attitude.

The story of Mathew Maritoma (of Indian origin) makes for poignant reading.He helped SAC make millions of $ with insider tips but was later arrested and sentenced to 9 years imprisonment.

His parents’ reaction at the sentencing sums the failure of the US system to indict Steve Cohen: “Who made the money? Someone made $275 million and they put all the blame on Mathew! The person who made the money is on a yacht.  And my son is going to jail !”

Can’t help but wonder how many of our investing “gurus” would be in jail had the same US standards been applied here.

Do Buy this Book if interested in hedge funds.

Book Review: Dream with your eyes open

“Dream with your eyes open-An Entrepreneurial Journey” is written by Ronnie Screwvala who founded and led the UTV Group.

Ronnie started UTV with Rs.37,500…he sold it many years later to Disney for over 2000 Crores

The Book describes the entrepreneurial journey of Ronnie who in the course of 25 years established a cable TV business, a tooth brush business, a TV content business and finally a broadcasting business.

The Book is full of anecdotes from Ronnie’s business life and he offers lessons to other entrepreneurs from these.

The book is written in a very light and humorous way as seen from the paragraph below:

“Driving in India is a neat metaphor for looking around the bend. One half of your driving skills amounts to how you drive,the other half preempts how everyone else drives. That’s just India. No lane traffic,absolute chaos and a heightened sense of alertness and anticipation that accompanies the (normally) simple and safe act of driving. As a leader and entrepreneur, be vigilant.”

The Book also gives interesting insights into the TV and Film industry…how very difficult it is for “outsiders” to break in this insular world.

Another aspect which I found very interesting was Ronnie’s phenomenal deal making skills and his utter disdain for investment bankers. One of his awesome deals was where he convinced Vijay Mallya to sell his TV channels (Vijaya TV) to him with a deffered payment…i.e. he got control of the assets first and the payments to be made later

Do Buy this Book if interested in entrepreneurship and to understand the Indian Media Sector better.

Book Review: The Descent of Air India

The book ‘Descent of Air India’ is written by Jitender Bhargava, who spent more than 2 decades working with the airline.

As such, he writes with an insider’s view with brutal honesty how a great airline was brought to its knees.

Air India started life in October 1932 when the great JRD Tata flew a single engine aircraft from Karachi to Bombay carrying air mail.

The airline was christened as Tata Airservices and then Tata Airlines and then Air India in 1946.

In 1953, the Government took over the airline and thus started the slow descent of Air India.

The initial decades were very good for the company as it enjoyed monopolistic status.But as the skies freed up and competition increased, the airline was unable to cope and is currently on the deathbed.

The Book explains how deep the rot is there in Air India and makes for a depressing read.

The rot starts right from the top…the Civil Aviation Minister and the rotten babus of the Civil Aviation Ministry.

The Book is full of anecdotes of their antics that makes one cringe.

Once Air India wanted to recruit cabin crew.The Chairman and HR Head were summoned by Ghulam Nabi Azaad,then Civil Aviation Minister.He asked them to recruit his candidates.When the request was declined as these candidates were already rejected by Selection Panel, the Minister cancelled the Recruitment Process !

In another shocking example, a Canadian Company was found guilty in a Canadian Court for giving bribes to Officials for a security system in Air India.The then Civil Aviation Minister Praful Patel is explicitly named in the indictment.

The rot follows to the Chairman/MD of Air India.The author wryly puts it: “Instead of following Mahatma Gandhi’s decree that Work is Worship, the successive Chairmen/MD of Air India believe in Worship (to the Minister) is Work”

There is an interesting passage in the book about how Air India Chairmen behave:

“Every new Chairman would come in and garland JRD Tata’s bust, which is located in the foyer;a photographer was present recording the moment for posterity;and then the Chairman walked into the room once occupied by JRD Tata. He would then say that he was humbled to sit where the great man once did and he would endeavor to restore the airline’s past glory.”

But nobody really did anything and the airline continued to bleed.

The author also writes about the notorious unions of Air India.For the slightest excuse, they would abort flights,walk out etc.

The unions were very successful negotiating fat paychecks, allowances, perks etc for themselves and this lead to the bloated cost structure of Air India.

The author examines critically two of the main problems facing Air India-the nonsensical acquisition of 50 aircraft and merger with Indian Airlines.

Both these decisions taken by Praful Patel resulted in the company collapsing completely…it has incurred losses of over 40,000 Crores (and counting) since then.

The author ends the Book with the Question-Was Air India murdered (due to specific acts of malafide intention) or suicide (due to own actions of stupidity and mismanagement) ?

The answer is : Both

After reading this book, one cannot help but come to the conclusion that Public Sector Companies can survive only in an environment where they are a monopoly. They cannot compete where the private sector have a free and fair hand.Sector after sector-telecom ,banking, insurance-etc bears this out.

Do buy this Book to know how sarkaari companies function and how the aviation sector works.

Book Review: Elon Musk

This biography of Elon Musk by Ashley Vance is an incredible read.

Many people know of Elon as the Founder of Tesla but not many know his story.

Elon was born in South Africa in a middle class family. He migrated to Canada in his late teens and paid for his studies doing odd end jobs.

He then went to University of Pennsylvania on a scholarship program and eventually moved to the West Coast.

At the time, the dot com boom was on. He used his coding skills to start a company called Zip2 – a primitive Google Maps meets Yelp. This was sold to Compaq for $307 Million.

Musk made $22 Million from the deal and used to start X.com which eventually became Paypal. eBay later acquired PayPal for $1.5 Billion giving Musk a gain of around $200 Million

Musk poured this money to form 3 companies-SpaceX, Tesla and Solar City (which was later sold to Tesla)

What I find striking about Musk is his vision and his determination to get his vision executed.

X.com was started to replace banks altogether.

SpaceX was born to fulfill Musk’s desire of making humans an “inter-planetary species”

Musk got involved with Tesla to ensure America forever gets rid of its addiction to oil and all the wars it does to protect the “oil economy”

The author does an excellent job chronicling Musk’s struggles and challenges as he formed and ran these companies.

The stories of each company is fascinating-the technological challenges, litigation, demanding Boards,office politics,media leaks, cash flow issues , customer pushbacks, govt regulations etc

The author writes in a very easy and gripping style which makes the book unputdownable.

After reading the book, one gets two feelings:

“What a Guy !”

“Only in America !”

Do buy this book to know how one guy is changing your future

Book Review : Hedge Fund Market Wizards

Jack Schwager is very well known for his books on top traders/investors in the Wizard Series:

It will be no exaggeration to say that many people took up full time trading/investing as a vocation after reading his books.

In his book, Hedge Fund Market Wizards,  the author interviews fifteen Hedge Fund Managers who typically run portfolios worth Billions of $.

After reading some of the interviews,I got a feeling similar to what Nastase said about tennis legend Bjorn Borg: “We’re playing tennis , he’s playing something else”

Take for example-the concept of risk.As investors in stocks, we feel we have diversified company/sector risk by having a portfolio of 30 odd stocks

For some of the fund managers the concept of risk and how to manage it is very much different.

For example, for Ray Dalio, he manages risk by having 100+ uncorrelated assets…these assets range from equities, debt, currencies, spreads etc.

Each interview has lots of nuggets of information and one is simply taken aback by the sheer variety of trading/investing styles and the large amounts of money involved.

Some takeaways I found particularly useful :

  • There are a million ways to make money in the markets.Use an approach which suits your personality/temperament/style
  • Do more of what works for you and less of what doesn’t
  • Position Size can be more important than the Entry Price

The author ends with 40 Market Wizard Lessons which is the summation of his experiences of interviewing some of the best fund managers in the world.

This Book is strongly recommended.