If you’ve read my bestselling book “An American Hedge Fund” (or you can get it here for free for a limited time), you’d know one of its central themes was my anger over being constrained by the SEC’s rules prohibiting advertising of my superior performance and not being able to grow my hedge fund as fast as I wanted, wasting countless precious opportunities.
In 2006, despite being ranked the #1 short-bias hedge fund for 3 years by Barclay after earning roughly 20%/year during a strong a bull market (no easy task for a short seller), I had managed to raise just a few million dollars and had less than 300 overall industry contacts.
(Contrast that to the daily offers of managing millions and the 20,000+ contacts I’ve made in just 5 years since I got out of the hedge fund world and started openly posting my trading performance online)
This was because I grew up middle class and hedge funds were/are only for accredited investors, meaning those with millions of dollars in assets, so I never knew many rich people who would even qualify as investors.
And my conservative lawyer pounded it into my head that with my incredible, seemingly unbelievable returns of which I had audited (when I first turned my $12,415 into $1.65 million in 4 years), I MUST stick to the industry rules and raise money conservatively eventually.
It was maddening – especially for the cocky impatient, never-lost-big-before young trader that I was – and my inability to grow as fast as I wanted led me to veer away from my predictably solid but not explosive-returns-generating (at least when you get up to the millions of dollars range) trading strategy in favor of going for a home run with a sizable investment in my family friend’s startup.
(That investment failed spectacularly as I detailed here and it cost me roughly 1/3 of my assets and all of my credibility despite my core trading strategy not being at fault whatsoever)
(Cygnus, renamed Accesso, the company in question, got acquired years later in 2012 for $20+ million which would have made me several million dollars…I was dead right about their next generation ticketing solution being worth millions, but I was wrong with my timing and I naively trusted management…I ended up losing hundreds of thousands of dollars for myself and my investors when the new sheisty management purposely bankrupted the company to wipeout debtholders, and original shareholders like myself, only to sketchily re-emerge with a new company name and somehow all of the same longterm contracts such as with Six Flags…shadyyyyyy)
Heck I was so pissed, I even made a music video specifically about this rule:
Well, just the other day the SEC finally abolished this ancient rule of no hedge fund advertising and now these investment vehicles can advertise freely as you can read here.
In just a few days, I’ve received hundreds of emails asking my opinion on this change…
You’d think I’d be jumping for joy, right?
Score one for a freer America and all that, right?
While I am glad that future outperformers…and underperformers for that matter…will be free to advertise, thus giving them the opportunity that I never had to raise a ton of money fast and take full advantage of whatever opportunities they see, my experience in the finance industry has grown immensely and I’ve matured greatly these past few years and I can see the conservative regulator’s standpoint much better now.
The reality is back as a 23-year-old recently minted multi-millionaire, I probly didn’t deserve any more money and had I had more I would’ve screwed it up some other way because I hadn’t truly learned risk management yet.
And this applies to nearly every trader and investor with “superior” performance that I have encountered since.
So, the rules preventing me from growing too fast were actually a good thing, I just couldn’t see it at the time.
And this applies to most hedge funds nowadays too – since I’ve been teaching for over 5 years now I’ve seen so many scandalous traders and strategies, all of whom are now free to cast their dangerous influence over normal Americans who can’t tell the difference.
Of course, hedge funds are still only open to rich investors, but given this political change, I wouldn’t be surprised to see those limits changed in the coming years either…yay, free America!
But beware careless, wreckless, greedy America as we’ve already nearly blown up our economic system several times, this new change will only increase the risks, not reduce them.
Too much dumb money everywhere these days, but the good news is you can take advantage of it (just as I do with short selling blatant penny stock pump and dumps and why more than a dozen of mystudents are now up $100,000+ just halfway through 2013, along with 2 of them surpassing $600,000 in total profits with my strategy)
So, I’m not for or against more regulations, it’s just reality that during the good times, aggressive, lobbyist-paying speculators dominate the conservative old schoolers.
That’s right, as first detailed in the masterful book most of my readers are too lazy to read “Extraordinary Popular Delusions and the Madness of Crowds”, during the good times, time and again we forget to learn from the struggles and mistakes of the past.
Enough preaching, what does this new hedge fund rule means for you?
For the average American or even non-American, it’s great news!
Now not only will you be subjected to advertisements from the greatest-sounding-but-more-dangerous-than-you-can-possibly-immagine investment vehicles, but these new rules also cover venture capitalists and startups too!
Can you see where I’m going with this?
It’s a bull market baby so everyone is freer to pitch whatever schemes they want.
Sure, sure the SEC will halt the most blatant penny stock pumps as they’ve recently proven, but more sophisticated criminals and manipulators are now more likely to flourish.
We’ll see more charts like this, the latest penny stock pump I’ve shorted which rose 30x within a few weeks and has now fallen 50%+ since I called it the single best stock to short sell just 2 weeks ago:
Or better yet you can be in position to profit by recognizing their schemes ahead of time and learning to profit by betting against them.
Ah yes, I have a somewhat twisted world view, but it’s made me rich…and now it’s making my students rich too 🙂
Ignore me at your own risk…in the meantime, score a win for free markets proponents and three cheers for the bull market!