Investment Series Preview: The "Good Bye and F__k You" Letter

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Is this a hedge fund manager? (photo: dannyhammontree)

I’m in the process of preparing a series of posts on the investment lessons I’ve learned in the last 18 months.

To preface the series with some humor (and insight), I thought one particular farewell letter would be appropriate. The author is hedge fund manager Andrew Lahde, who produced a one-year 866 percent return betting on the subprime mortgage collapse.

Today, he announced he was leaving the hedge fund business with a rather hysterical letter…

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde

Hat tip to Ryan Holiday for pointing me to the letter. More on rethinking investment soon.

###

Odds and Ends: You Rock!

Donorschoose got 2nd place ($500K) in the American Express competition by a very thin margin. Your votes made the difference and will impact more than 30,000 schoolchildren who need education the most. Remember this!

I hope each of you realize that your actions will make a life-changing difference for thousands who never would have otherwise had the opportunities good teaching (and enabled teachers) will provide. This is huge.

Have a wonderful weekend! All of you should be very proud of yourselves.

Posted on: October 18, 2008.

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81 comments on “Investment Series Preview: The "Good Bye and F__k You" Letter

  1. Saw this article elsewhere yesterday, and a quick pass through the comments is yielding the exact same results…widely varying opinions. Either way you look at it, this ‘mission statement’ (or was it a memo) is raising some seriously good points, opening eyeballs, causing quite a discussion, and giving Canada a bunch of free press. :)

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  2. I’m a strong believer in Capitalism and I intend to restore its freedom in America.
    I’m glad this guy (and his hate) are out of the business. I think we need more people like him to retire so we can restore some healthy competition to the economy.
    The problem isn’t Capitalism or greed – it is the Government. The Government needs to be restricted – not the people.

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  3. What are great post! Perhaps Jefferson was right: We need a revolution in this country every ten years; I have a thought: Let’s vote out ANY incumbent this year, whether you think your representative is the best or not!

    As to the constant struggle to obtain and keep material wealth, I to, at age 51, have decided that the constant hamster-like lifestyle was killing me, and have decided to jump off! Since we know that death is ceratin, and time of death is uncertain, and we cannot take anything material with us when we die, WHY do we spend so much time pursuing such illusory objects?

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  4. Great stuff Tim. At some point you have to just ignore the insanity that goes on in politics, the office, etc. We can’t change the game we can only play it better.

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  5. Fantastic mail. Let’s indeed hope the guy can overcome his bitterness and use the rest of his time to do something useful for the world, rather than waiting for George Soros.

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  6. You all miss the point of the letter. He is pointing out that corporate American has become a pyramid scheme because of hedge funds (my definiion is ungreluated financial firms). The games is : 1) Top Tier MBA gets you 1/2 way up the pyramid. 2) If you can get to the top you pump the stock of your company, cash in and move on to the next company. 3) Either repeat or retire.

    The related point is that it is no longer capitalism. Capitlism is about people creating value with capital. Not about enriching yourself through stock trading, which is just a transfer of wealth (tax) from the middle class (401Ks) to those ontop the pyramid.

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  7. @Nate: …Canada is definitely not laughing as the U.S. (unless they are kidding themselves) with the horrendous taxes they pay and waits for this awesome “free” (paid for through more taxes) health care.

    As a Canadian now living in the US, I can tell you that the “horrendous” taxes pretty much even out after even moderate health care costs. Sure if you’re living on your own and young you may be better off in the US. But for working, middle-class families, the cost of taxes + health care insurance + medicare ends up very close to the cost of taxes in Canada.

    Of course, in Canada, everyone is covered (not just 50%) and bankruptcies due to medical conditions are dramatically lower.

    Lets also talk about “wait times” as a metric. Waiting sure is annoying, but aren’t we really worried about the amount people who receive timely care and the amount of people who survive medical emergencies?

    And yes, the author is right, Canadians do a lot of laughing at the silly things that happen in the US.

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  8. “and Canada is definitely not laughing as the U.S. (unless they are kidding themselves) with the horrendous taxes they pay and waits for this awesome “free” (paid for through more taxes) health care.”

    LOL, yes we are. :-)

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  9. Great discussion. Couple of things to add that I did not see mentioned.

    No system is perfect.

    Capitalism does have it’s flaws, but it is dictated by the masses. If something falls out of favor within a capitalist society, it goes away. People pull their money out and put it somewhere else. It will have down turns and hardships, but all in all it is fairly flexible. If people are stealing money or taking advantage of others they will eventually get caught and prosecuted.

    Governments are a whole other animal. They are dictated by the few. Yes we vote Reps into office, but then they have full control along with the special interests. Once they start to grow the govt they never stop. The govt will continue to consume and want more and more from the taxpayers. It is a never ending cycle that will eventually grow to the point of collapse, ie USSR. And when corruption happens, hardly anyone goes to jail.

    I will always side with capitalism because it give more individuals the freedom to do what they want. Stop relying on govt to fix your lives, they will fail every time.

    Good Luck,

    Dana

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  10. The method that he used to make his money was productive because he understood that the Dow had shot up from 8,000 to 14,000 between 2001 and 2007 and home prices had risen 200-300% over the same period as people flipped houses all over the country, sometimes over and over again. Those huge upswings had to come down at some point as the market always does. Just look at the chart since the beginning of the century. Up and down, up and down. The stock market is just one representation of how cash is moving around a speculative market. The value of those stocks is speculative, just like the value of the homes. Just because someone would pay $405,000 for a 1-bedroom condo doesn’t mean that those same buyers will be around in 2-3 years. Most people just want to live in their house. It’s only the speculators that are pushing prices up that high.

    Smart people converted their housing flips to cash and CD’s and just took the 6% a year. They are riding pretty high right now. Those who flipped a property and then took their earnings and tried to flip 2 more properties are the ones who are foreclosing today. Just got a little bit too greedy, and a lot of them already had their “earnings” spent and could not imagine that those home prices would ever stop continuing to rise. They were simpy bad investors. However, they can just bail themselves out by foreclosing. It’s rather easy to foreclose. You just stop paying. Then the bank owns the home and then it’s a real problem for the bank because these homes they now own are worth a lot less than the 10 huge home loans that they just gave to 10 other people to purchase more “flip” properties. But most of the banks got bailed out too, and the resiliency of these banks is suprising on some level. It’s the investment banks that got hurt the most as they bought security instruments that represented many, many of these foreclosed mortgages. Some of the investment banks got bailed out too as the Fed realized that some level of investment banking is vital, and hopefully the current Fed and their successors will remember the lesson of too-low interest rates and overspeculation by the large investment banks.

    The real winners in all this were the ones who had actually lived in their homes for 20 years and sold it at the peak of the housing bubble. Most of them had no intention of flipping a house or even knew what that was. Instead they simply bought a nicer house with their massive earnings and hopefully put most of it in their down payment or kept it in savings accounts or CD’s. If they put it in stock, I would tell them to hold onto it and ride it out if they can. The market will be up in another 3 years and roaring in another 5-7 years as the psychology shifts and the very real cash and industrial production that is still out there is transferred back to the stock market in a grueling, trickling fashion. True 5-7 years is a long time, but it’s inevitable. When all the world markets are down 60-70%, there is bound to be a huge comeback on the horizon. Look around you. The X-box 360′s and Nintendo Wii’s and Playstation 3′s aren’t going away and mankind will continue to move forward and innovate. This lesson of history has been shown several times before and as long as people are working hard and being productive then it will happen again. So remember, mini-retirements are fine, but overall, in your life, we need everyone out there working their ass off to create and build the world around us. It’s not good to say that Steve Ballmer and Larry Eliison are stupid because they are out there creating and marketing software and they work really hard. The power grid uses that software and so do many of the city services. My job uses that software and it’s on the computer in my house. Most likely guys like Ballmer and Ellison love their jobs, and I’m glad they do. I don’t think the goal should be to “drop out”, but instead the goal should be to find a job that you like to do and try to add to society by doing it well.

    The author was a hedge fund manager. I wonder if he has ever created anything?

    As for hemp. Smoke it.

    p.s. This guy is a real class act. What kind of arrogant bastard says “Fuck You” to the whole world?

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  11. And the merchants of the earth weep and mourn over her, for no man buyeth their merchandise any more; merchandise of gold and silver; oil and coal and steel; credits and deposits; stocks and obligations and pseudo-educations; contracts and options and other derivatives; biotechnology and nanotechnology and every engineering – and any other charms – as well as of chariots and slaves; and souls of men. (Rev 18:11-13)
    Did merchants of these goods feel already the smell of smoke?
    The smoke of her burning – a sweet savor unto Lord.

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  12. Been working on that alternative economy over at my web site. It’s mainly a matter of reviving some forgotten ideas and getting rid of the hidden subsidies to the rich.

    * Deficit spending is a subsidy to the rich.

    * Keynesian economics is all about keeping us running on the rat race. The ideal economy should have unemployed resources — another name for wealth!

    *Pay as you go Social Security is a way of keeping the working class from owning the means of production.

    * The Federal Reserve system assists the privately owned banks in their ongoing game of Chicken with the economy.

    * The tax code encourages excessive leverage on the part of homeowners and corporations.

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  13. I understand how he (Andrew Lahde) feels making it without the “privilege” of everything being handed to you. Not that there is anything wrong with that, but the overall attitude of those I have dealt with is that they should get whatever they want, right now. In fact, they tend to throw fits like little kids when they don’t get what they want. I have had unpleasant dealings recently with a young “business” person using his Father’s credit score to obtain money. He fits right into that prototype, and I am still quite bitter at this point. On the bright side, it has helped me create new contracts and procedures to prevent many of the issues this person has caused. I have learned a lot, and look forward to working with many more good clients like those I have been priveleged to be able to work with in the past. It does feel good to build a strong business from the ground up, without looking for a hand out.

    There is always a time after the years of stress that we think of reducing hours and living off what we have. Unless you enjoy it, why spend all of your time on it? I look forward to exciting new prospects, and I know there are many out there that share that feeling. Life is meant to be lived. We have to be careful not to get caught up in “working just to work”. Again, as always, 4HWW spells it out just right.

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  14. I liked the idea behind the message: make a ton of $ and then ride off into the sunset. The actual content is pretty petty, however, and strikes me as a classic example of a guy who got lucky, and not realizing that somebody had to get lucky, clings to the belief that he is somehow special. See Fooled by Randomness.

    Why the need to attack people who went to elite schools? Why tell the whole world–presumably including your friends and co-workers who helped you on the way up–that you’ll not be responding to them any longer.

    And he doesn’t want to do any deals? Ever again? Sounds boring.

    For a better example of how to sail off into the sunset with grace, see Lucky or Smart by Bo Peabody. He made $500 million as the founder of Tripod, was smart enough to realize he was very lucky, sold out, and then wrote a book to help other people understand when they’ve gotten lucky and should cash-in.

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  15. @Ryan and All,

    “Lucky or Smart?” by Bo Peabody is great. Fast read and highly recommended. There is something to be said for timing, but I admire people who can admit the role that pure luck plays in a lot of huge successes. Chance and fortune (in the Seneca sense) are always a factor.

    Good suggestion,

    Tim

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  16. Institutions always let you down and sell you out. The first season of “the Wire” taught us that! I am stuck in the institutional life and am currently working my way through the book. Believe it or not, Tim, I bought your book because somebody else was reading it on the Tube and it sounded like the book I’ve been looking for my whole life. Anyway, just to say, I’m enjoying the blog and the book and the guy, while having been part of the problem, is at least trying to get into the right frame of mind now.

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  17. Dear Tim,

    My congratulations for this great success & fame that you are recieving thru your book 4HWW.

    This is a really well designed blog and i wanted to know if you can give me some tips on making such a blog and which blog service are you using?

    Thanks

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  18. Mitesh,

    You should be able to create a blog with a similar feel to it with wordpress. You will need a hosted version (not the free wordpress blog from wordpress.com) that you can put on a server, and either purchase, build, or download a free template for the blog.

    My website was done from a wordpress template, (click on my name to see it) and turned out very well.

    I agree this 4hww blog looks great, and is quite comfortable to navigate.

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  19. Lucky or smart…
    It seems no matter what your view if you hang onto it long enough you will be lucky or smart. Getting out when you should just isn’t possible for most of us unless we are really lucky or smart.

    Rick

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  20. This letter means very little to the everyday man.

    There is just no way most of us on Earth can get rich and stop working. This guy is lucky. Most of us are too busy with working for a living to fantasize about walking away from a multimillion dollar job.

    I have read Tim’s book, and I agree with most of the principals in there. But it is highly unlikely that I will invent some product or gain some investment that pays me a handsmoe passive income. I wish that I could, but it will not happen.

    We all come to this site to read about interesting people and to take our minds off of “reality”. But the truth is that people like us in the trenches allow people like hedge fund managers and other wealthy tycoons to stop working and talk crazy about the world. I can bet any amount of money that this guy would not have such radical views if he were making around $40,000 a year like me.

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  21. Tim, I have filled out the paperwork and I am trying out for Shark Tank in Philadelphia on May 11th. I was hoping you could give me some advice. We have been working really hard on our new business for the past 18 months and it is really going well other than investment. We have established 8 revenue streams with in the business model and reached millions of people. It is an amazing idea and I just don’t want to blow this opportunity on Shark Tank. Thanks my Martial Arts Brother.

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