HOW I MADE $2 MILLION AS A STOCK OPERATOR AND CREATED A HEDGE FUND TIMOTHY SYKES HAVE WHAT IT TAKES TO BE MY NEXT SUCCESS STORY? Up-to-date I have helped more than a dozen students make solid six-figure profits. I have also helped thousands of students learn how to become self-sufficient traders. The Greatest Risk Is Doing Nothing! Now is the time to immerse yourself into my world of trading penny stocks using my niche strategy; both on the long and short side. I've been consistently profitable during this market volatility; and now it’s your turn! You don't have to be a trading professional to work with me. Truth is, I don't really care what your experience level is or how much you have in your trading account. I just need someone who is willing to be teachable and follow my instructions line upon line. WHY AM I DOING THIS NOW? You've seen the news. High unemployment, recessions, downsizing, and foreclosures are a daily topic. Right now is the best time to invest in a trading education and I will prove it by helping you make big money in this market. Because I get so many requests daily (over 2,500 emails per day...no joke), not every- one will qualify. I'm going to select a handful of lucky people who are serious, motivat- ed, and ready to work. If you'd like a chance at being one of those people, apply at www.timothysykes.com/millionaire-challenge DISCLAIMER: The trading profit figures stated are my personal profit figures. Please understand my results are not typical, I’m not implying you’ll duplicate them (or do anything for that matter). I have the benefit of trading stocks for 20 years, and have an established following as a result. The average person who trades stocks get little to no results - 90% of traders lose money. I’m using these references for example purposes only. Your results will vary and depend on many factors …including but not limited to your background, experience, and work ethic. The stock market entails risk as well as massive and consistent effort and action. If you're not willing to accept that, please DO NOT READ THIS BOOK. Copyright © 2008 by Timothy Sykes. All rights reserved. Printed in the USA. Published by BullShip Press, LLC, Hamden, CT No part of this publication may be reproduced or transmitted in any form or by any means—electronic or mechanical, including photocopying, recording or information storage and retrieval systems—without written permission from the author, except for the inclusion of brief quotations in critical articles or reviews. For copies and further information, address to: BullShip Press, LLC, 900 Mix Ave., Unit 22, Hamden, CT 06514 First Edition Book design by: Margo Lee Edited by: Alexander Paul Morris, Allison Kaye and Paula Plantier Sykes, Timothy; An American Hedge Fund: How I Made $2 Million as a Stock Operator and Created a Hedge Fund ISBN 10: 0-9795497-0-1 ISBN 13: 978-0-9795497-0-0 Library of Congress Control Number: 2007903520 Library of Congress subject heading: Hedge Funds, Investments, Speculation, Stocks DISCLAIMER This book was not designed to provide more than anecdotal information on stock trading and hedge funds. It is sold with the understanding that the publisher and author are not engaged in rendering legal, accounting, professional or investment advice of any kind. If legal or other expert assistance is required, the reader should see the services of a competent professional. It is not the purpose of this material to reprint the investment information that is otherwise available to traders, fund managers and the public but instead to relay one individual’s experi- ences in the finance industry. You are urged to read all available material, learn as much as possible about stock trading and fund managing, and tailor the information to your individual needs with the assistance of trained professionals as may be necessary. Trading and, more specifically, hedge funds are not “get-rich-quick” schemes. Serious pursuit of the activities described in this book requires a great deal of time and energy in order to learn the intricacies of the marketplace. Even then, there are no guarantees of success, as many hardworking people involved in these activities still lose money. Every effort has been made to make this book as complete and accurate as possible. Howev- er, there may be typographical and/or factual errors and omissions. Therefore, this text should be used only for entertainment purposes and not as a reference for trading and hedge fund information. Furthermore, this book contains trading and hedge fund information that is current only up to the first printing date. The purpose of this book is to entertain. The author and BullShip Press, LLC shall not be held liable for any loss or damage caused or alleged to have been caused, directly or indirectly to any person and/or entity, by the information contained in this book. Any mischaracteriza- tions or misrepresentations of people, places or organizations are done unintentionally and without malice. If you do not wish to be bound by the above, the author and BullShip Press, LLC kindly request that you please stop reading this book now. TABLE OF CONTENTS ACKNOWLEDGEMENTS ....................................................................................... 06 INTRODUCTION ..................................................................................................... 08 PROLOGUE: A VIEW FROM THE TOP .............................................................. 13 1. START ME UP ......................................................................................................... 20 2. BITTEN BY THE BUG ........................................................................................... 28 3. SHOWTIME ............................................................................................................ 36 4. THE FRESHMAN 107,000 ................................................................................. 54 5. HAPPY NEW YEAR! ............................................................................................. 69 6. ONCE IN A LIFETIME ......................................................................................... 85 7. WHEN THE LEVEES BROKE ............................................................................ 101 8. MARGIN OF SAFETY ......................................................................................... 124 9. THERE’S NO BUSINESS LIKE HEDGE BUSINESS .................................... 140 10. 2004: A HEDGE FUND ODYSSEY ............................................................... 170 11. THE YEAR THAT CYGNUS BUILT ................................................................... 193 12. I LOVE NEW YORK! .......................................................................................... 210 13. PINK TO RED INK ............................................................................................. 221 14. I AM A WARRIOR ............................................................................................. 234 15. LESSONS LEARNED ........................................................................................ 253 THE NUMBERS ........................................................................................................ 267 AN AMERICAN HEDGE FUND 05 ACKNOWLEDGEMENTS I would like to thank the thousands of inept corporate management teams, shady brokers, boiler rooms, pump and dumpers, stock promoters, market manipulators, wannabe traders, newsletter writers and Internet message board posters—for your endless scheming and undying greed, without which my for- tune would never have been possible. Thank you to the third-party marketers, accredited investors, hedge fund databases, TV producers, journalists, bloggers, CNBC and, of course, the SEC, for without you my story would probably never have been told. Most importantly, I have to thank the people who gave me money for my bar mitzvah, for unwittingly being my first investors, and my parents, for willfully investing in me and supporting me in all my endeavors. v. AN AMERICAN HEDGE FUND 06 HEDGE FUND A mutual fund organized as a limited partnership and using high-risk, speculative methods to obtain large profits. — Dictionary.com An investment company that uses high-risk techniques—such as borrowing money and selling short—in an effort to make extraordinary capital gains. — American Heritage Dictionary A flexible investment company for a small number of large investors (usually requir- ing a minimum investment of $1 million); can use high-risk techniques (not allowed for mutual funds) such as short selling and heavy leveraging. — WordNet, Princeton University An investing group usually in the form of a limited partnership that employs specu- lative techniques in the hope of obtaining large capital gains. — Merriam-Webster’ s Collegiate Dictionary v. AN AMERICAN HEDGE FUND 07 I have no extraordinary talents and yet I was a millionaire by the age of 22. I was raised to believe in America and in all of our nation’s most sacred principles, including freedom, justice and success through hard work. I created my wealth by repeatedly betting much of what I had in the belief that I could predict the future of certain stocks’ prices. I was right often enough to become wealthy within a few years. Most people are reluctant to talk about how much they earn, while my profession is defined by it. Most people mismanage money; my wealth is built on the backs of other people’s financial mismanagement. I take from the middle and upper classes and give to myself. I get paid only if I can correctly predict how a stock will act over the next few minutes, hours and days. I am a stock trader and I earn a living from trading the smallest, most volatile publicly-traded companies in America. There is no salary, no pension, no health insurance, not even any coworkers, but the independence of it all is exhilarating. On several occasions, I have lost and gained hundreds of thousands of dollars, all within a few minutes or hours. It is gambling, but it is researched gambling. The digital world has created a new frontier where it’s every man for himself—and there are few rules. You either make money or you don’t. It’s the American dream on steroids. I made huge amounts of money for years and then tried to expand my operation by becoming a hedge fund manager. Yes, I became part of the vaulted high-stakes end of the investment business that has recently become the center of much debate. I had no idea what I was getting myself into. This was a whole new ballgame and I was about to receive quite an education. The industry was subject to U.S. Securities and Exchange Commission (SEC) regulations that 9 prohibited advertising, talking to the press and any detailing of business activity to non-wealthy people. These regulations were designed to protect investors who had no business investing in hedge funds, but instead, they have hurt only the smallest of funds like mine. Industry growth has continued unabated, but due to the lack of publicly available information, the media has gotten it wrong and the general public has become scared and confused. This has made it nearly impossible for startup funds with few connections to raise capital. There are reasons why 80% of the money invested in hedge funds is controlled by 20% of the funds, and much of it is due to industry regulations. This great country was built by people who risked everything for a chance at a new future, success and freedom. Hedge fund managers share similar dreams. Some are successful, but many more are not. Win or lose, industry regulations prohibit us from telling our stories, so the press reports on industry corruption and failure, creating skepticism among investors. The media has detailed only this industry’s greatest failures, while everything else is pure guesswork, unable to be confirmed or denied by its subjects. Every industry has derelicts, and yet ours are paraded in front of the masses, skewing public perception. My hedge fund is little more than a speck in this colossal industry, and yet it serves as a shining example of why hedge funds should be free of oppressive restrictions. The word speculator should not have a negative connotation. We represent the very definition of entrepreneurship and the American dream. If we win, we’re richer, and if we lose, we’re wiser. If you can afford to play, it really is a great profession. Financial speculation is in every American’s blood; it’s our true 10