Thursday, May 20, 2004

A Review of Ben Mezrich's UGLY AMERICANS

A Review of Ben Mezrich's
The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions

The first non-fiction book written by Ben Mezrich was Bringing Down The House: The True Story of Six MIT Kids who took Vegas for Millions. In that book, as the title clearly states, Mezrich detailed the activities of MIT whiz kids who took Vegas for millions. They did it by winning at the blackjack tables, thousands of dollars at a time.

In Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions
, Mezrich is back detailing the exploits of big money winners. In this case though, the winnings aren�t thousands of dollars at a time, but millions at a time.

Mezrich tells the true story of a Princeton grad who ends up in Japan, without knowing a word of Japanese. He is brought there by a mysterious expatriate derivatives trader, who was then working for Kidder Peabody. The Princeton grad is only identified by the pseudonym John Malcolm. The derivatives trader is identified by the pseudonym Dean Carney.Through Carney, Malcolm, who thinks he is headed to Tokyo, ends up trading the Nikkei Index for Kidder Peabody in Osaka.

He does this until Joesph Jett�s infamous bond trading, at Kidder Peabody in New York, results in hundreds of millions of dollars in losses for the firm. This results in the closing of Kidder�s trading operations in Japan. Malcolm, out of a job, lands back on his feet in Osaka as a trading assistant for Nick Leeson. Leeson is, of course, the 26 year old rogue trader who lost nearly two billion dollars and brought down the oldest bank in England, Barings Bank, and which ultimately results in Malcolm being out of a job for a second time.

With these two adventures under his belt, the mysterious derivatives trader, Carney, brings Malcolm from Osaka to Tokyo, where Carney has started up a hedge fund.

It is while working directly for Carney that the money winnings get real big and Malcolm ultimately walks away with $50 million in his pocket.

The tale of how all this occurs is told in superb fashion by Mezrich. He is a storyteller that knows how to tell a tale with suspense and an observant eye. The reader of this tale will feel like he is part of the action and won�t want to put the book down. It�s a page turner.

Mezrich also knows how to pick the topics for his writing. In this tale the reader is not only exposed to high stakes trading, but also to Japan�s underground world of exotic women and Japan�s mafia, the Yakuza.

This book, in no stretch of the imagination, can be classified as an inside account of how hedge funds work. Anyone looking for a detailed explanation of how a hedge funds work will be disapointed by this book. This is a tale about an adventure set with the backdrop of the expatriate life of a bunch of traders in Japan. But, never the less, it does give a good taste, a snapshot if you will, of how the Carney hedge fund operated. Indeed, what we find particularly attractive about the Carney hedge fund, that Mezrich reports on, is that it tends to trade positions based on information advantage. This is a particular method of trading that, we believe, can be one of the most advantageous with limited pitfalls when done correctly. Do your homework. Understand a situation better than anyone else, and you can sometimes spot glaring inefficiencies in the market that can lead to huge profits. This is the big hidden lesson in this book and it is what makes this book a must read. As Mezrich quotes Carney, reporting on one of �Carney�s Rules,� �The key is to figure out the real, intrinsic value�and get it for much, much less.� This is a much better method of trading for hedge funds or individuals alike, versus the momentum, model building and trend following methods that many individuals and hedge funds use. It is trading based on model building that brought down Long Term Capital Management. And we believe that it will be model building methods, trend following methods and momentum trading methods that will result in huge losses in the not too distant future for many hedge funds and individual investors, when the trends change because of changes in Fed monetary policy. Trend followers, momentum traders and model builders, always miss the inflection points. Information traders, seeking information advantage, don�t necessarily get caught up in these problems.

You can read this book for its pure adrenaline packed adventure tale, but make sure you take to heart Carney�s Rules of Trading. The mysterious Dean Carney knows how to trade and of what he speaks.