Hedge Funder vs. Tycoon
It often seems as if everybody wants to be a hedge fund guy these days. If you then ask the wannabes what hedge funders do, you invariably get a vague answer along the lines of “they invest in stuff” or worse, a simple blank stare. Now to be honest, it took me a while to get a handle on what they do. (Note that I didn’t use the word “understand.”) As far as I can make out a hedge fund is basically an unregulated mutual fund for sophisticated high net worth individuals and institutions. This is another way of saying that a hedge fund can invest in almost anything that its management believes it can earn a high “alpha” in. (The alpha is a rate of return above and beyond what one might expect from trading in stocks and bonds the way mere mortals do.)
So basically almost anything goes so long as there is potential for the high returns necessary to attract and keep sophisticated investor capital.
Now here’s why I write about hedge funds today. I get asked a few times a year if The Tycoon Playbook approach can lead to a career as a hedge funder. The answer is yes and no. First off, I need to explain that these are two entirely different ways of doing business and making money. Hedge funders are guys who wear $5000 suits every day of the year, never leave their 45th floor offices in the financial district except to go home, and have frustratingly vague or no operational experience at all. In contrast, tycoons are hands-on guys who have accumulated plenty of operational experience over time. They are not afraid of popping the hood when something is wrong and fixing it themselves, as you see Marcus Lemonis doing in his show. This is a key difference. Hedge funders tend to be long on MBA-style theory and short on actual experience when it comes to running a company not that that stops them from thinking that they know it all. Those who achieve tycoon status end up long on experience and use theory wisely.
So I respond to the question in this manner. Once you have a sufficient pile of cash you can be anything you want: a hedge funder, an angel investor, a venture capitalist, or a private equity dude. That’s the great thing about being wealthy. However, the real question you need to ask yourself is what do you really want to be in life? Do you want to be a dandy in French cuffs who thinks he knows it all and devotes his life to mere speculation? Or do you want to be the guy who focuses on building real wealth with real businesses?
As the old joke goes, relying on these guys for advice over the long-term is like relying on a bookie to advise an NFL coach on how to play his team. There’s only so much insight that can be gained from spectating.
I know which group I respect more and which one tends to have a net plus effect on our economy rather than a net minus.
If you are just starting out and dream of a career as a hedge funder, your best bet is go for a Top 5 MBA, start collecting expensive cufflinks, and apply for an entry-level position at graduation.