The Greatest Trade Ever Read Free Page B

funds around the globe managed almost $1.5 trillion, surpassing even Internet companies as the signature vehicle for amassing fortune in modern times. Because many funds traded in a rapid-fire style, and borrowed money to expandtheir portfolios, they accounted for more than 20 percent of the trading of U.S. stocks, and 80 percent of some important bond and derivative markets. 1
    The impressive gains and huge fees helped usher in a Gilded Age 2.0 as funds racked up outsized profits, even by the standards of the investment business. Edward Lampert, a hedge-fund investor who gained control of retailer Kmart and then gobbled up even larger Sears, Roebuck, made $1 billion in 2004, dwarfing the combined $43 million that chief executives of Goldman Sachs, Microsoft, and General Electric made that year. 2
    The most successful hedge-fund managers enjoyed celebrity-billionaire status, shaking up the worlds of art, politics, and philanthropy. Kenneth Griffin married another hedge-fund trader, Anne Dias, at the Palace of Versailles and held a postceremony party at the Louvre, following a rehearsal dinner at the Musée d’Orsay. Steven Cohen spent $8 million for a preserved shark by Damien Hirst, part of a $1 billion art collection assembled in four years that included work from Keith Haring, Jackson Pollock, van Gogh, Gauguin, Andy Warhol, and Roy Lichtenstein. Whiz kid Eric Mindich, a thirty-something hotshot, raised millions for Democratic politicians and was a member of presidential candidate John Kerry’s inner circle.
    Hedge-fund pros, a particularly philanthropic group that wasn’t shy about sharing that fact, established innovative charities, including the Robin Hood Foundation, notable for black-tie fund-raisers attracting celebrities like Gwyneth Paltrow and Harvey Weinstein, and for creative efforts to revamp inner-city schools.
    The hedge-fund ascension was part of a historic expansion in the financial sector. Markets became bigger and more vibrant, and companies found it more inexpensive to raise capital, resulting in a burst of growth around the globe, surging home ownership, and an improved quality of life.
    But by 2005, a financial industry based on creating, trading, and managing shares and debts of businesses was growing at a faster pace than the economy itself, as if a kind of financial alchemy was at work. Finance companies earned about 15 percent of all U.S. profits in the1970s and 1980s, a figure that surged past 25 percent by 2005. By the mid-2000s, more than 20 percent of Harvard University undergraduates entered the finance business, up from less than 5 percent in the 1960s.
    One of the hottest businesses for financial firms: trading with hedge funds, lending them money, and helping even young, inexperienced investors like Michael Burry get into the game.
    M ICHAEL BURRY had graduated medical school and was almost finished with his residency at Stanford University Medical School in 2000 when he got the hedge-fund bug. Though he had no formal financial education and started his firm in the living room of his boyhood home in suburban San Jose, investment banks eagerly courted him.
    Alison Sanger, a broker at Bank of America, flew to meet Burry and sat with him on a living-room couch, near an imposing drum set, as she described what her bank could offer his new firm. Red shag carpeting served as Burry’s trading floor. A worn, yellowing chart on a nearby closet door tracked the progressive heights of Burry and his brothers in their youth, rather than any commodity or stock price. Burry, wearing jeans and a T-shirt, asked Sanger if she could recommend a good book about how to run a hedge fund, betraying his obvious ignorance. Despite that, Sanger signed him up as a client.
    “Our model at the time was to embrace start-up funds, and it was clear he was a really smart guy,” she explains.
    Hedge funds became part of the public consciousness. In an episode of the soap opera
All My Children
, Ryan told Kendall,