Book I Read: An American Hedge Fund

Early in the summer, I received a book, An American Hedge Fund*, from Timothy Skyes, the author of the book. I intended to finish the book as soon as I could at the time when I got it, but seemed never have the time until recently.

The book is actually an autobiography of a young man, Tim Skyes, and how he became a millionaire by trading stocks in the late 90s and early this decade, which had turned his $12,415 trading account into a fortune of $1.65 million in just 3 years. After finishing the book, I have no doubt that Tim is very successful in picking and trading stocks and making money out of them. His experience is quite inspirational as not a lot of people can make a ton of money and start their own hedge fund at the age of 22. However, I didn’t find too much value in this book, partly because I am not a trader. In fact, for an average Joe or Jane who would rather take a get-rich-slowly approach to their money, then this book doesn’t offer many insights on the fundamentals of investments.

The majority of the book was devoted to details of how Tim traded stocks during the dot com bubble. Starting to follow the stock market at 12 when he bought his first stock, Tim discovered what he called “patterns” of how the stock prices moved and believed that he could make money from what he observed. And indeed he did. What I noticed the major theme from his trading days when he was then a college student was the pattern. The pattern that guided him to make the buy and sell decisions.

During the early days as a trader, he bought penny stocks whose prices were almost entirely driven by “press release,” whether there was a business or not didn’t matter at all. Like many people were just crazy about hot tech stocks, Tim spent his school days scrolling through news sources, discussion forums, and bulletin boards to find stocks he could profit from. Later, he shifted his focus on IPO tech stocks and kept testing and applying new trading techniques while watching his money grew. At that time, it was not rare to see prices of internet stocks doubled or even tripled in the first day of trading, though those companies never made a penny. This paragraph from book could best describe what was happening in the peak time of day trading:

The actual business execution was irrelevant. Traders didn’t care about the fundamentals of these companies; their only concern dealt with these companies’ ability to issue press releases that would influence other traders to bid the stock higher.

That could be true back then. However, I am not sure how the techniques that helped Tim make his first million could be applied to today’s market for investors like me who prefer buy and hold. The market has changed and lessons have been learned.

I have read quite a few books on finance and investing and this book is different from all the others. Though in the book Tim used quite some examples to demonstrate how he made, and sometimes lost, his money, not much was talked about investing. If that’s what you are looking for, then you will have to look something else.

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