$29.95 USA / $35.95 CAN M c B C L u l ak lO D KEITH MCCULLOUGH is the founder of Research e Ug h iary of a Hedge Fund Manager is an insider’s Edge, a provider of independent securities markets view of the high-stakes money management research that has become the go-to source for analysis world. In a distinctly straightforward and, at and trade recommendations among savvy money “An engaging and fascinating memoir of a Wall Street insider who foresaw the crisis and lost his job times, humorous style, Keith McCullough managers. He is also a Bloomberg TV Contributing for it. McCullough has written an insightful fi rsthand account of our modern Rome before—and and Rich Blake take you on the journey of a young Editor. McCullough started in the business in 1999 after—its fall. The author stands head and shoulders above his peers with his phenomenal trading and successful hedge fund manager and former as an equity analyst at Credit Suisse First Boston. track record, personal integrity, and skill at communicating his unique experiences.” — Richard L. Peterson, junior hockey player from Thunder Bay, Ontario, From there, he ran assets for Dawson-Herman MD, Managing Director, MarketPsy Capital LLC; author, as he gets recruited to the Ivy League, stumbles onto Inside the Investor's Brain Capital Management’s Millennium Fund, and then the nexus of the hedge fund universe, and then gets launched his own fund, Falcon Henge Partners “If an unholy offspring of Lester Bangs and Don Cherry traded and wrote a fi nancial market diary, a crack at running his own pile—becoming one of LLC, which was integrated in to Magnetar Capital. it might be something like the smart, hip, and crunching commentary hedge fund manager Keith the best young portfolio managers on the Street. He then moved on to become a portfolio manager McCullough delivers every day. Keith is on a short list of must-reads in a business fi lled with also-rans.” at Carlyle–Blue Wave until 2007. McCullough is a — Dr. Paul Kedrosky, Editor, Infectious Greed; Managing Director, IG Holdings; Senior Fellow, But when the young portfolio manager fi nds graduate of Yale University and also former captain Kauffman Foundation himself working for one of the world’s most of the Yale hockey team. prestigious fi rms—helping to run their hedge fund “Diary of a Hedge Fund Manager should be added to the list of must-read books on Wall Street. It RICH BLAKE operation just as the market is starting to crack was the cofounder and executive is very rare that readers get this kind of insight into the world of what Wall Street calls the “smart in 2007—McCullough becomes a lonely voice money”. McCullough’s exciting and inspirational story reinforces the fact that hard work pays off. editor of Trader Monthly magazine. He frequently The book does a great job of pointing out that, on Wall Street, common sense and hard work trump of reason in a world that rewards groupthink and contributes to CNBC’s Power Lunch and to Alpha a PhD—without actually saying it. His honesty is refreshing and reminds us all that the giants of disregards the adage about past performance having and Portfolio magazines. Prior to the launch of the hedge fund world are mere mortals. This story is one that both Wall Street and Main Street can no bearing on future results. When McCullough Trader Monthly, Blake wrote for Institutional Inves- relate to and learn from.” fi nds himself shown the door, the story takes a tor. He is the author of two books, The Day Donny — Douglas M. Famigletti, CFA, Managing Director, Griffi n Asset Management, Inc. fascinating turn into the world of independent Herbert Woke Up and Talking Proud: Rediscovering research and no-holds-barred criticism. the Magical Season of the 1980 Buffalo Bills. “Like Liar’s Poker and Fiasco before it, Diary of a Hedge Fund Manager offers a fascinating, funny, and frightening account of life on the Street. An indispensable account of how the fi nancial-industrial Page by page, this fast-paced ride through the world complex destroyed so much of the ‘value’ it purported to create.” of hedge funds reveals the unvarnished truth of —Dan Burrows, Senior Writer, DailyFinance how Wall Street and hedge funds really operate and offers real-world investment lessons you can take “The hedge fund world is notoriously secretive. But in Diary of a Hedge Fund Manager, Keith away and put to good use. McCullough reveals what's behind the curtain to show an industry that frequently is little more than a lot of smoke and mirrors, much the same way that Toto revealed the Great and Mighty Wizard of Oz to be nothing more than an ordinary man.” Written with the authority of someone who knows JACKET DESIGN: MICHAEL J. FREELAND —Michelle Leder, founder and Editor, footnoted.org; author, Financial Fine Print KeitH McCu lLoUgh how Wall Street and hedge funds work, yet accessible to even a casual follower of fi nance, Diary of a Hedge WITH RiCH BLAKE Finuvnedst mMeannta ignerd umstirxye sw ai tcho nfustnrduacmtiveen tcarli tlieqsusoen os f ththaet any investor will fi nd valuable. OVERALL MATTE FINISH ffffiirrss..iinndddd iiii 1111//1177//0099 99::3377::3388 AAMM Diary of a Hedge Fund Manager i ffffiirrss..iinndddd ii 1111//1177//0099 99::3377::3377 AAMM ffffiirrss..iinndddd iiii 1111//1177//0099 99::3377::3388 AAMM Diary of a Hedge Fund Manager From the Top, to the Bottom, and Back Again K M C EITH C ULLOUGH WITH R B ICH LAKE John Wiley & Sons, Inc. iii ffffiirrss..iinndddd iiiiii 1111//1177//0099 99::3377::3388 AAMM Copyright © 2010 by Keith McCullough and Rich Blake. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profi t or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762- 2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: McCullough, Keith, 1975– Diary of a hedge fund manager : from the top, to the bottom, and back again / Keith McCullough with Rich Blake. p. cm. Includes index. ISBN 978-0-470-52972-0 (cloth) 1. Hedge funds. 2. Investment advisors. I. Blake, Rich, 1968– II. Title. HG4530.M39 2010 332.64(cid:1)524–dc22 2009035907 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 ffffiirrss..iinndddd iivv 1111//1177//0099 99::3377::3388 AAMM For Jack ffffiirrss..iinndddd vv 1111//1177//0099 99::3377::3388 AAMM ffffiirrss..iinndddd vvii 1111//1177//0099 99::3377::3388 AAMM Contents Introduction 1 Chapter 1: Catch a Wave 9 Chapter 2: Shipping Out 17 Chapter 3: Welcome to the Jungle 29 Chapter 4: Snapshots from the Dot.Com Bubble 39 Chapter 5: Discovery 61 Chapter 6: Flying with the Giants 79 Chapter 7: Shifting for Myself 97 Chapter 8: Sucked In 115 Chapter 9: Worlds Collide 123 Chapter 10: Exile on Wall Street 139 Chapter 11: Lifting the Curtain 157 Chapter 12: The Great Squeeze 185 Epilogue 197 Acknowledgments 205 About the Authors 207 Index 209 vii ffttoocc..iinndddd vviiii 1111//1177//0099 99::3388::1199 AAMM ffttoocc..iinndddd vviiiiii 1111//1177//0099 99::3388::1199 AAMM