See part 1 to know about the GameStop situation and the general way on how these Hedge Funds work.
HEDGE FUND MANAGERS
It is very easy to start a Hedge Fund, initially, anybody with a computer and a decent internet connection can start their own firm. But to beat the competition and to gain trust with people’s money that you’re going to magnify is the hardest part, which comes only with time and proven results. Mostly many firms were started in the 70s. Some of them have grown out to be a huge success in today’s time.
Believe it or not, making ultimate profits in Hedge Funds is a trial and error process, if you haven’t failed once big time then I am not giving you my money. Making huge profits starts with making big losses and learning from the mistakes. Bridgewater Associates manager Ray Dalio has lost it all several times, which may have taught him well the ups and downs of the market.
Here, I am not suggesting that failure is the only way to have a successful management career, but it plays a vital role in achieving greatness in any career as such, proven results dictate success as well.
How they Make Money?
The managers and their firm make money by taking a flat 2% fee (regardless of the profit or loss)and 20% of the profits that they generate for their clients. Anyone can figure out if you have more clients, the 2% fee becomes huge, and if you are good at your job then the 20% will make you wealthy.
And by investing their own money in the things that they believe are worthwhile.
CASE STUDY ON LEGENDARY HEDGE FUND MANAGERS AND INVESTORS
1. Michael Burry
The guy who short the housing market in the only ever mortgage crash and made Billions.
There was a time when the housing market was booming and there was no stopping it, the prices of houses were surging high and high but the market came crashing down when the Sub-Prime loans were given to the people, loans were given without security and the ability to repay it, this led to the decline of the housing market, which Michael Burry noticed before it occurred. People saw him as a crazy person when he tried to bet against the housing market but he had the last laugh in the situation and made millions out of his gut.
For more details on the crash of the housing market: https://sanujraj.medium.com/deeper-than-depression-the-2009-collapse-of-the-housing-market-d4c97b6a7f96?source=your_stories_page-------------------------------------
The bet that he made against the housing market was one of the most courageous ever because there was no history of the housing market crash, and him figuring it out before it even occurred, which is some otherworldly stuff.
But you can’t be on the top and be making gravity-defying bets, here is how Michael Burry made a $500 million mistake:
2. Warren Buffet
He made $84.1B of his wealth out of $84.9B after his 50th birthday through the magic of Compounding.
As a matter of he wasn’t even a billionaire until his 50th birthday. He understood the magic of compounding early on in his life and worked for it. His simple mantra is to buy low and never sell, keep it for eternity. That’s all he did in his early investing. Analyze the good companies and invest in them and keep them forever. A prime example of this is that his 40% portfolio consists of AAPL, which is one of the best investments as we all know Apple is the first publicly-traded company that has surpassed the likes of $2 Trillion in modern history.
3. Bill Ackman
He made a return of $2.6 Billion from an initial investment of $27 Million within a pre-pandemic month.
He was the one who accurately predicted the coronavirus crash that happened in the month of March. He didna want to sell his holdings just because of the crash and decided to buy protection for his firm and clients instead. He spends roughly $27M buying insurance on his investments from wherever he could and that turned out of the best decision ever.
From the insurance, he made a return of $2.6B within a span of just more than a month during the start of the coronavirus stock market crash in March 2020, which is otherworldly returns.
This is the same way through which the giant AIG nearly went bankrupt during the housing market crash in 2008. For more information read: https://sanujraj.medium.com/deeper-than-depression-the-2009-collapse-of-the-housing-market-d4c97b6a7f96
4. George Soros
The guy that broke the bank of England and made $1B for his firm in a day by shorting the British Pound.
Here is a video that will explain the process of making $1B, better than I ever could:
5. Ray Dalio
Heads the largest Hedge Fund in the world by AUM (Assets Under Management).
Ray Dalio started his firm in the mid-70s from his New York apartment. He is considered a kind of diety in the money-making world.
After Dalio completed his education, he worked on the floor of the NYSE and traded commodity futures. Later, he stepped up the ladder to make his presence felt.
In 2011, he published a 123-page volume called “Principles”. He himself has said he could improve his returns just by following these principles. He has also published many videos making the general public understand how the economy works.
In 2017 he stepped down as the co-CEO of the firm as a part of a company-wide shake-up during that month. Now the firm continues to be the best in the world by providing good returns on a yearly basis.
In his current stage of life, he has become a philanthropist and helping people with his generosity. In 2011, he and his wife has joined the giving pledge, started by Bill Gates.