Category Archive: Books

Nov
10
2011

Street Fighters: The Last 72 Hours of Bear Stearns

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by Martin Lee

November 10, 2011

The dramatic collapse of MF Global in less than a week made me pick up a copy of the book, Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street for some leisurely reading over the weekend.


The financial markets are so complicated and inter-connected nowadays that it only takes a few days for a financial institution to fall into bankruptcy from a seemingly comfortable position.

In Bear Stearn’s case, the share price fell from $60 on a Thursday to a takeover price of merely $2 on Sunday which the board of Bear had no choice but to accept. The deal was later revised to $10.

I am sure that in the very near future, there will be at least a few books narrating the events at MF Global in the last few days, just like Kate Kelly’s Street Fighters did with Bear Stearns.

Some of the content in Kate’s book actually appeared originally in WJS as articles. Here’s are some portions:

Short adaption from the book: Inside the Fall of Bear Stearns.

Part 1 of a 3-part series: Lost Opportunities Haunt Final Days of Bear Stearns

Part 2 of a 3-part series: Fear, Rumors Touched Off Fatal Run on Bear Stearns

Part 3 of a 3-part series: Bear Stearns Neared Collapse Twice in Frenzied Last Days

While the book has 200+ pages, the action is pretty fast paced and I managed to work through the book in less than one night.

Now we all know that the fall of Bear Stearns is just a precursor of much worst things to come in the later part of 2008. But people outside the financial world were mostly unaware of the rapidly degenerating situation underneath Wall Street. Those who knew of course would have made a fortune during that once in a lifetime opportunity.

Food for thought: Is the fall of Dexia Bank and MF Global the precursor of more failures to come?

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Oct
12
2011

The Greatest Trade Ever

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by Martin Lee

October 12, 2011

The Greatest Trade Ever is a book written by Gregory Zuckerman that tells the (true) story of how John Paulson made financial history on Wall Street by betting against the subprime.

Unlike The Big Short which gave equal emphasis to a few major characters, this book is more focused around John Paulson. We learn about his background and subsequent involvement in the biggest trade of his life.

Inevitably, the few central characters in Michael Lewis’s book were also mentioned in this book. People like Greg Lippmann and Michael Burry had their story told again, which I found consistent in both books.

However, there was a character in the book called Andrew Lahde that I wanted to talk about. 35 years of age in 2006, out of job and with little left in his savings account, he could sense the opportunity and tried to set up a hedge fund (operating from his apartment).

He was wildly successful and retired at the end of 2008 after his big bet paid off. At the end of it all, he closed the hedge fund and sent a letter to all his investors, part of which I would like to share with you:

“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 nest three months, they look forward to their two-week vacation in January during which they will likely be glued to their Black Berries or other such devices.

What is the point? They will all be forgotten in fifty years anyway. Steve Ballmer, Steven Cohen, and Larry Ellison will all be forgotten. Give up on leaving your mark. Throw the Black Berry away and enjoy life.”

Judging from what Andrew wrote, he probably had a eight figure net worth. While I do not agree with everything that he wrote, he does have a point.

So, my question to you is this: Are you working so hard that you are ignoring the important things which are in your life right now?

Think about it.

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Sep
21
2011

The Big Short by Michael Lewis

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by Martin Lee

September 21, 2011

The Big Short: Inside the Doomsday Machine by Michael Lewis was a book that had been on my “to read” list for a very long time. I finally had a chance to finish reading it when I was travelling recently.

Michael Lewis tells the story of the subprime crisis and its subsequent implosion by following a few central characters. Not famous people like Ben Bernanke, Timothy Geithner or Dick Fuld, but less well known people like Steve Eisman, Michael Burry, Greg Lippmann, Jamie Mai and Charlie Ledley.

Most of these people understood the subprime problem well before it erupted into a full blown crisis. They managed to put the pieces together and subsequently profited immensely from the crisis.

The background stories of these central characters are intriguing by themselves and combined with the inside story of the financial markets, makes the book a very compelling read.

The story of Michael Burry would serve as an inspiration to fund managers wannabes. Michael was a doctor but had a passion for the inner workings of the stock market. In his free time, he would do research on stocks and publish his findings on a personal blog. His work was so good that both ordinary investors and people from Wall Street started following his trades.

When Michael Burry decided to quit his medical career and focus on managing his own money, he had just $40,000 in assets and owed $145,000 student loans. But when he announced his decision to go into full-time portfolio management, he was immediately approached by a couple of fund managers who had been following his blog. One gave him $1 million to acquaire a 25% stake in his firm. Another gave him $600,000 for a smaller stake in the company, but invested $10 million into his fund.

Michael did not disappoint and outperformed the market significantly. Within three years, he was managing a portfolio in excess of $600 million and turning investors away.

The story of Jamie Mai and Charlie Ledley was even more astonishing. They were a bunch of 30 year-olds managing a sum of $110,000 out of their garage. By exploiting inefficiencies in options pricing and taking calculated bets, they were able to grow their portfolio in ways we can never imagine.

Their first trade of $26,000 on a call option grew into $526,000.

Their second trade of $500,000 turned into a $5 million profit.

Their third trade of $200,000 quickly turned into $3 million.

Two years after they opened for business, Jamie and Charlie were running a portfolio of $12 million of their own money. Later on, they were to hold $205 million worth of credit default swaps on subprime mortgage bonds.

The Big Short: Inside the Doomsday Machine was a book that I found hard to put down after I got started. I will certainly want to read other books written by Michael Lewis. I understand that they have also received very positive reviews.

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Feb
12
2010

On the Brink – Henry Paulson

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by Martin Lee

February 12, 2010

On the Brink is a book written by former Treasury Secretary Henry Paulson. It gives an insider account of the events that unfolded in the biggest financial crisis that took place since the Great Depression.

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System

During the crisis, major institutions including Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Merrill Lynch, and Citigroup all stood at the edge of collapse. Decisions had to be made at lightning speed to prevent the financial system from collapsing.

on the brink henry paulson“The pace of events during the financial crisis of 2008 was truly breathtaking. In this book, I have done my best to describe my actions and the thinking behind them during that time, and to convey the breakneck speed at which events were happening all around us.

I believe the most important part of this story is the way Ben Bernanke, Tim Geithner, and I worked as a team through the worst financial crisis since the Great Depression. There can’t be many other examples of economic leaders managing a crisis who had as much trust in one another as we did. Our partnership proved to be an enormous asset during an incredibly difficult period. But at the same time, this is my story, and as hard as I have tried to reflect the contributions made by everyone involved, it is primarily about my work and that of my talented and dedicated team at Treasury.”

Earlier this week, Warren Buffett and Henry Paulson appeared in an informal 50-minute “conversation” that focused on Paulson and the events he writes about in his book, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System

Here, in two parts, is the video recording of the entire event:



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