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Book Review: An American Hedge Fund

An autobiographical look at major trading success and giving it all back.

[easyazon-link asin=”0979549701″]An American Hedge Fund[/easyazon-link]If you’ve been on many trading sites recently you will almost certainly have come across mention of Timothy Sykes and/or his book [easyazon-link asin=”0979549701″]An American Hedge Fund[/easyazon-link]. A great many folks have slammed Tim for any number of reasons. Some of the criticism can be called legitimate. Much, though, would seem to be more motivated by jealously at the type of publicity Tim’s been receiving. Don’t get caught up by only one point of view, but instead draw your own conclusions.

For the sake of full disclosure, Tim approached me with his pre-publication version of the book to get feedback and a brief recommendation. I provided both. You will find a short quote from me in the front of the book (along with many others) and I’m happy to see that in the final version he did correct an error I had pointed out. Be aware however, that this review is in no way influenced by my earlier involvement. It is always my intent to provide honest assessments of trading related materials so folks can be fully informed and make good decisions for themselves.

As I finished reading An American Hedge Fund, I couldn’t help but recall a quote by the master trading philosopher and legend Ed Seykota. The title of his [easyazon-link asin=”1592802974″]Market Wizards[/easyazon-link] chapter is “Everybody Gets What They Want” (also available in [easyazon-link asin=”1592802818″]recorded form[/easyazon-link]). Seykota’s point of view is that we all end up getting out of the markets what we want, and that big time profitability is not always what we are really after, whether we realize it or not. My guess is that in hearing Tim Sykes story, which is what An American Hedge Fund really is, Ed would say that Tim got exactly what he really wanted out of the markets.

Now Tim has read a great many books, and Market Wizards is on that list. I wonder if he ever made the connection that seems to really stand out – at least to my mind – from his story. I won’t say what exactly that is, though. Let’s call it a puzzle for you to figure out as you read the book. 🙂

And if you are someone just getting started in trading, An American Hedge Fund is definitely worth putting on your reading list. I’m not going to put it ahead of the likes of the first two Market Wizards books (I’m less enamored of the third), and a few others I could mention – and I’m guessing Tim would agree with me on this – but it’s certainly worth the time and reasonable price.

Don’t expect some master work of writing here. This book is not the product of an experienced, trained writer, and it shows. That’s not necessarily a bad thing, though, because it allows for a freedom which might not come through were a more practiced author involved. What Tim has produced is just a straightforward, honest account of the his trading experience. It’s an easy, fairly quick read, and tells the story efficiently. The one exception, to my mind, would be the final chapter which does ramble and repeat a bit.

My one gripe with the narrative is the fact that Tim often says he risked $X on a trade when referring to a position’s size. In almost none of these case was he really putting all that money at risk since the stock wasn’t going to zero (even in his favored microcaps). It would have been more correct, and less confusing for those who might not pick up on the difference, to have said something more like “I had $X worth of …” or “I shorted $X of …”. That’s a relatively minor point in the grand scheme of things, though.

So, here’s the skinny. An American Hedge Fund is an autobiography covering about 8 years or so of the author’s life.  It opens with a little childhood background, but quickly moves on to Tim’s high school experience getting started in trading. It then progresses through his explosive performance during college, and finally carries on into the third stage after college during which he was primarily in the fund management game.

The title of the book, An American Hedge Fund, actually belies somewhat the main thrust of the narrative. Certainly there is plenty of discussion regarding Tim’s efforts in forming and growing his own hedge fund. The majority of the book, though, involves a detailing of many of the trades Tim made along the way, with a lot of personal side story added in to allow the reader to get to know the author. This chronicle of his trading is what I consider to be the most valuable aspect of the book for someone learning about the markets.

I have read reviews of the book by others who say that no real meaningful trading methodology lessons are to be learned in this book. I contest that point of view. Tim doesn’t come out and say do this or do that, but if you pay attention to the way he talks about the trading set ups he was looking for you will grasp the approach. It’s not something proprietary or anything like that. In fact, it’s a common approach, which just goes to show that you don’t need something new and unique to make good money in the markets.

Don’t get me wrong. Tim hit the markets with the right approach at the right time and made loads of money as a result. He was playing with money he had no problem putting at risk and made much of his outsized returns taking risks many of us would never consider. Most of us aren’t that lucky. He also, though, shifted his strategy when he realized what he was doing no longer worked. Markets do change, and traders need to be flexible and able to adapt.

At the same time, Tim also demonstrates what happens to nearly all traders at some time. He ignored his trading rules on a regular basis. Many times it didn’t matter and he came out of it just fine thanks to favorable market conditions. Often, though, it cost him dearly, as it does with all of us eventually. He also learned the hard way that trading to achieve a certain goal oftentimes makes you do things that actually make achieving that goal harder.

Read this book. Learn the lessons Tim learned (or in some cases didn’t). You could end up a better trader for it. You won’t find the path to long-term trading success here, but you will find some of the key landmarks. Remember what Ed Seykota believes, though, and see if you can observe what Tim really wanted and how the pursuit of it ended up being the real reason why he stopped being the same trader he had been during his prime years. It really doesn’t have anything to do with ability or the markets changing.

By John

Author of The Essentials of Trading

18 replies on “Book Review: An American Hedge Fund”

Update to the Sykes saga. He has been reported to the SEC for posting on message boards attacks against a company he made a short recommendation against on thestreet.com

How he swindled that side into giving him a podium is anybody’s guess. I imagine he fancies himself ala Jim Cramer, but where he tries to match Cramer in terms of bluster and self-aggrandizement he lacks Cramer’s obvious deep well of knowledge and ability to educate about the markets which is something Sykes cannot do. I hope Cramer knows Sykes used his site and then bashed the same pick on Yahoo and Raging Bull message boards immediately after to reinforce the chances of success for his short recommendation.

This kid is the sleaziest thing to hit the financial media in a long time and that is saying something.

Just say NO to Tim Sykes.

And if you haven’t already seen his now classic laughing stock of Wall Street series of emails published on TraderDaily.com go look them up. They are excruciatingly embarrassing.

I read Sykes mediocre hedge fund book since I knew him at Tulane, and like him as a person. However, the book is an empty and uninspiring story about how Sykes became a self-absorbed irresponsible stock trader. This book is NOT a “classic” and story is NOT “Rocky-like”(as author Sykes claims). This book is basically like a blog of an average person who got lucky trading stocks and then his luck ran out (which it really should be – blog and nothing more).

Beware of all the phony glowing reviews for Sykes Book. Its the good ole boy network in high gear where authors/investment advisers use the buddy system to give fake good reviews to each other.

Sykes put the term “stock operator” in title in order to confuse all future book searches for Jesse Livermore’s excellent story (Reminiscences of a Stock Operator, by Edwin Lefèvre (1923)). This cheesy trick might help book sales, but needless to say, Sykes has nothing in common with the great trader Livermore.

Sykes comes across like a hyper/immature/video game player-type Trader, which worked for him for a few years; then the law of averages caught up with him. His “return to the mean” continues during the past two years; and his very poor investment strategies are DOWN -37% since Jan 2006. His continuous bad performance throughout 2007 shows that he does not learn from his mistakes; and readers can only cringe while watching Sykes slow motion demise.

Thanks for your thoughts Howard. I totally agree that the book is not a classic. I’m personally not a major fan of Reminiscences (which does seem to put me in the minority), but even still I wouldn’t put Tim’s book up in that category. There are little elements you can take from his general approach, but this is mostly a lesson in what not to do. As I noted in my own review, Tim got what he wanted out of trading, but it wasn’t consistent profitability or long-term success.

I also read the Sykes book and it is not worth $20.

It is basically about a guy who was very lucky while gambling with stocks; then his luck ran out…

…now he needs to be a book/dvd salesman to make money because even his own family no longer trusts Sykes to manage their money….

I disagree Mike, at least in part. The primary skill required for successful trading is pattern recognition. If you pay attention to what Sykes talks about in terms of his trade set-ups and research you can see that he’s actually got some talent there. That said, he clearly was a gun slinger in terms of the risks he took, and it’s pretty obvious that once the focus no longer was about the trading, but rather other things, his performance went downhill very quickly.

I read Sykes worthless book and it has no substance. There are plenty of other books that cover the same subject matter from people who have a right to even author a book on the subject.

This worthless book is just an attempt at coming up with a catchy title to generate hits on a search engine. Same old tired information presented.

Sykes is a failed hedge fund manager, now becoming a snake oil book salesman. Book not worth $20.

Steve,

Thanks for sharing your thoughts.

I agree that the book’s title is not greatly representative of the contents. The book is an autobiography, plain and simple, and spends relatively little time on the hedge fund subject.

Might I ask, though, by what criteria does one obtain “the right” to be an author? What if Sykes were to make $1,000,000 trading in the next five years and become a successful hedgefund manager? Would he then magically aquire such a right to author this very same book?

I don’t know what you expected out of the book. Your review strikes me as one from someone who thought he’d find something deeper than the fact that sometimes there’s luck involved along with a bit of skill and sometimes you can screw it all up because you aren’t focused on trading, but on other things.

The value of this book comes primarily from the fact that Sykes is willing to expose his failures. Not a lot of folks are prepared to do that, especially not so close after the fact. You aren’t going to find too many master traders who didn’t go through some of the same adversity. Read the interviews in Market Wizards. I don’t put this book in the same category, of course, but it does offer some of the sames lessons.

I don’t agree with some of the investment comments above but skillful investor issues aside I just thought Syke’s book was an interesting story. Nobody is saying he was the best hedge fund manager of hist time…There are many books written about less interesting stories. It must of been exciting running a hedge fund no matter how small when you are in your younger 20’s.

Why is Sykes being skewered here to no end? Is it because of things said on t.v. or elsewhere? I don’t own a t.v. so maybe I miss something that others are jumping on here. I thought the book was a fun read and unique story.

What am I missing here?

Richard – I haven’t seen anything on the television myself, but I know Tim has been on CNBC and other programs. I think the vitriol spent on him comes about because of a couple of things. Jealousy is certain part of it. There’s also the view that because Tim is a “failed” hedge fund manager he must have nothing worthwhile to say.

Tim certainly has been a huge self-promoter (which many find annoying, to say the least). As such he’s drawn the spotlight to himself and the harsh light has given anyone with even the slightest inclination to find fault more than enough fodder. I don’t know how or why he has rubbed some people completely the wrong way, but he obviously has. I have no behind-the-scenes access to all of that, so I can’t make any judgements either way.

The bottom line for me is that the book does offer up some potentially useful lessons for those who care to look. Tim doesn’t present any dangerous or potentially distructive trading ideas, and in fact is a pretty good example of what not to do at several points.

Alright, I had assumed part of it was just the “higher you fly the more people try to shoot you down” situation…

I did have one random person come to my blog and simply post “stop writing this trash.” I replied with a link to a positive attitude book by Jeffrey Gitomer. I guess if millions of people read about your view of the world there is always a portion who is going to get fired up about it.

“Alright, I had assumed part of it was just the “higher you fly the more people try to shoot you down” situation…”

That’s definitely part of it.

You can’t knock him for running a small fund… most hedge funds are small – less than 10 people according to our annual hedge fund compensation survey. These firms are run by cowboy types that keep in the game if they are winning.

Sykes story is trying to uncover some of the “secret” stuff that goes on in the hedge fund world. If you are IN the hedge fund world, then it’s nothing new to you.

Cheers.

John

Well, an educational or prcticaal (work-related) background in business finance, specifically investment management, would be very useful. If you’re looking to work for a hedge fund, go to a great school and get great grades, then maybe you have a chance. If you want to start your own, you’ll have to convince several institutions (such as pension funds or corporations) and/or some wealthy investors, to entrust their money with you. Practically speaking, you’d need, at a minimum, about $50 million to run a self-sustaining fund.An ideal path might look like: undergrad degree in finance from U. Penn (Wharton School), two years working in banking of corporate finance (doesn’t much matter where), then an MBA from Harvard, Stanford, or MIT. Then get a job with an existing hedge fund. After a few years, leave and start your own.FYI, I’m not partial to any of those schools, but hedge funds can afford to be VERY picky about who they hire, so without great experience or dynamite grades, you’ll have an uphill battle.

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