Book Review: “An American Hedge Fund” – The Story of Timothy Sykes Who Turned $12,000 in Bar Mitzvah Money Into $1.65 Million and Started a Hedge Fund Before Finishing College

July 31, 2007 at 5:44 pm  ·  Category: Books

A few weeks ago I got an e-mail from Timothy Sykes offering me the opportunity to review an advance copy of his forthcoming An American Hedge Fund – due out October 1, 2007. 

At first I was skeptical.  I’ve had offers to review books before and, after looking into them, most have held very little interest for me. 

But as I started reading about Timothy Sykes and his story I became more and more excited. 

Tim turned $12,000 in Bar Mitzvah money into an audited, pre tax $1.65 million – before graduating from college! 

He set up a hedge fund, Cilantro Fund Partners, while finishing up a degree in Philosophy at Tulane that was the top ranked short bias hedge fund by Barclays in 2005. 

In 2006, Timothy was named as one of Trader Monthly’s “Top 30 Under 30”.  He’s appeared on Fox News Channel and CNBC numerous times.

He’s even starred in a TV show: Wall Street Warriors.

After turning up all this within an hour I was ready to agree to review An American Hedge Fund

The one question I still had, however, was if his writing would be up to the story he had to tell.

It is. 

In fact, it immediately reminded me of one of my favorite investment books of all time: Jim Cramer’s Confessions of A Street Addict.

*****

An American Hedge Fund is the first book I’d give to somebody if I were trying to interest them in the stock market. 

I’ve been talking with some local community colleges about teaching an intro to investments course.  If I do, An American Hedge Fund will be the first book we read.

The book is good for so many reasons. 

Obviously the story sounds like a Hollywood fantasy.  It’s inherently interesting to find out how it all went down.

Beyond that, the book is educational.  Timothy introduces readers to various concepts of technical analysis and to short selling as well. 

Finally, the book is a breezy read.  Sykes has a straightforward style that makes his book a pleasure to read.

*****

As a high school senior in the Fall of 1998 Sykes plunged into a stock market environment that in retrospect seems destined to have made him a very rich and famous young man:

I was about to discover I was in the perfect place with the perfect naivete at the perfect time in stock market history.  The Dow and the NASDAQ were coming off large drops in the summertime and the stage was set for a rebound and maybe more.  Internet and technology plays were the hottest sectors and drove the market rebound in the winter on its way to a year long record shattering stratospheric breakout.  The stage was set for me to shine (An American Hedge Fund, pgs. 34-5).

In the pages that follow, Sykes tells the story of how he surely and steadily grew his account by trading stocks like WelcomeToSearch Engine Inc., Nettaxi, Isleuth.com and Illinois Superconductor.

By the end of 1999, after his first semester at Tufts (he would later transfer to Tulane), Sykes had grown his account to $120,000.  He describes his strategy at the time:

The particular companies I played didn’t even matter because I played all sorts of companies; all that mattered were their stock charts.  I bought the stocks of companies with solid chart bases when their trading volume spiked along with their stock prices (p. 71).

A month into 2000 and he had more than doubled his account to $250,000 – a college freshman with a quarter million dollar net worth. 

You can imagine what this did for his popularity:

My popularity on campus was at an all-time high because many students had heard my story and had begun spending their days in my dorm room watching me trade.  I’d put on little shows for my disciples…. Frequently, there were nearly a dozen college students staring at me in awe while they watched me make $10,000-$30,000 in one sitting.  We all shared a good laugh when we discussed how little money they earned from their low paying summer jobs (p. 75).

After a $123,000 gain on a trade in Illinois Superconductor Sykes rounded up the entire dorm and took them out for a fancy dinner in downtown Boston.  The bill wasn’t too bad at $800 since, “after all, other than one flask that somebody had snuck in, there was no alcohol involved, since we were all freshman” (p. 91).

By April, his account had grown to $840,000.  This was (March 2000), of course, the end of the Nasdaq’s fantastic run and the beginning of a brutal bear market.

Determined to make $1 million for the year, Sykes tried out a bunch of other failed strategies.  Ultimately, however, he failed to reach his goal of making $1 million in 2000.

At the beginning of 2001, however, he was to find what would eventually come to be his calling: short selling:

The New Year brought a quick bounce in the markets as the decline over the past few months was grueling but gradual.  It was during this time that I became a bona fide short seller by focusing short selling on the market’s most popular technology companies (p. 109).

*****

An American Hedge Fund is a story so unbelievable it must be true.  Only in America!

I especially recommend this book for younger people who have an interest in the market or want to get started learning about stocks – and for parents who want to interest their kids in the stock market.

UPDATE (Sun 9/16, 3:00pm PST): An American Hedge Fund is now available for purchase at Amazon.com.

An excerpt from this review is featured on the Editorial Reviews page.

*****

UPDATE (Sun 9/16, 3:30pm PST):

A Response To Tim Sykes Critics

No post I’ve written has received as many comments as this one praising Tim Sykes’s An American Hedge Fund.

At first, I was surprised by their vehemence and unanimous negativity.  It even made me question whether I’d given the book such a good review because I got a free copy.  Reading some positive comments from highly respected Wall Street figures today reaffirmed for me what I wrote.

And I think I see what it comes down to.  All the commenters have pointed towards Sykes over the top personality and marketing and the underperformance of his hedge fund.  Some find him abrasive and others simply think he’s not that good of a trader.

But, frankly, that doesn’t touch my review.  His hedge fund might have underperformed of late, he might be a bit brash and the book might not teach you anything about the market if you are experienced.  I wasn’t arguing that Sykes is a great trader and that you should give him money to invest. 

I was saying that, regardless of his performance, Sykes has written an entertaining, readable and educational book that I personally think makes an excellent introduction to the stock market for young people.  Aaron Brown, Executive Director at Morgan Stanley and author of The Poker Face of Wall Street, called it Catcher In The Rye for traders” and I think that’s an apt description.

UPDATE (Mon 9/17/07, 12:50pm PST):

Tim Sykes Responds To His Critics

Greg, Thanks for the honest review of my book. I do have many critics, but not one of them knows the details of my gains and losses. Based on 2 minute-video clips and brief CNBC appearances, they critique my trading prowess. until now, nobody has known the whole story and I think that’s what’s wrong with the finance industry. There’s no way to tell who is right and who is full of it. This is why readers will be surprised at how honest my book is–I hide none of my faults (of which I have many), because in order to learn, we mist understand our gains AND our losses. There are lessons in everything we do and I think people who read my book will truly understand this.
Timothy Sykes  ·  Sep 17, 2007 at 12:19 pm  ·  Permalink [edit]
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