Book Review: Diary Of A Very Bad Year

I’ll admit to two large biases before praising Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager.

First, I prefer a personal account by a financial practitioner, rather than a financial journalist’s perspective, nearly every time. This preference, after all, underpins my idea with the Bankers Anonymous site itself.

The acronymic jargon of an ordinary financial practitioner’s presentation, however, typically overshadows his story for the lay reader. Who, except the specialist, can unpack the Re-Remics from the Reverse Repos, the positive carry from the negative basis trades, or FX forwards from a commodity curve in backwardation? Only the rare financier knows his craft so well that he can explain complexity while using language we can all understand.

Second, the Anonymous Hedge Fund Manager (HFM) featured in the book was a client of mine for a short while when I sold bonds on the emerging markets desk for Goldman. His clear language and thinking made a strong impression at that time.

Which explains why, when I read a review of this book a few years ago, I immediately thought of my ex-client. Was he the unidentified HFM? An email query and reply a few hours later confirmed it, yes.

Through a series of interviews with a journalist, HFM gives a wide-ranging but personal perspective on his experience between September 2007 and August 2009, covering the periods of the deepest dive and steepest financial recovery. His interests, while inescapably specific and technical, frequently veer to the philosophical and big picture.

In the free-fall period of late 2008 – when even the most plugged-in hedge fund manager was overwhelmed with unexpectedly bad developments – we experience a real existential question for financial markets: If all private banks were at risk of implosion without the backing of the US Government, what happens when the US Government defaults? Who is insuring it and how do you hedge that risk? Martians were not offering credit default swaps to earthlings.

Diary of a Very Bad Year will not tell you everything you need to know about the Credit Crisis of 2008. It will tell you what a large hedge fund manager experienced, in real time, in a way no journalist on the outside could ever tell you.

It’s the best book I’ve ever read on the Crisis.

I read this a few years ago but was reminded of it because my wife just read Diary of a Very Bad Year this past week. She found it somewhat technical for the non-finance expert – as terms like leverage, credit default swaps, FX crosses, and even ‘hedge fund,’ get thrown around without explanation or definition. But she also appreciated the brilliance and humor of HFM in describing those two awful years, in real time.

The final chapter reveals HFM’s plan to quit New York City and move to Austin, TX with his fiancé.

He’s burned out on the stress of the Crisis and the responsibility of managing a large team and complex portfolio at his New York hedge fund. He dreams of eliminating his management responsibilities, simplifying his life, and shifting his balance, away from working, and more toward living.

When I checked in with him for lunch in Austin a few years ago, he had followed his plan exactly.

diary of a very bad year


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