Category Archives: Book

Setting Up a Hedge Fund

1. He parks $100 million in one-year Treasury Bills yielding 4%
2. This then allows him to sell for 10 cents on the dollar 100 million covered options, which will pay out if the S&P 500 fall by more than 20% in the coming year.
3. He takes the $10 million from the sale of the options and buys some more Treasury bills, which enables him to sell another 10 million options, which nets him another $1 million.
4. He then takes a long vacation.
5. At the end of the year the probability is 90% that the S&P 500 has not fallen by 20%, so he owes the option-holders nothing.
6. He adds up his earnings – $11 million from the sale of the options plus 4% on the $110 million of T-Bills – a handsome return of 15.4 percent before expenses
7. He pockets 2% of the funds under management ($2 million) and 20% of the returns above, say, a 4% benchmark, which comes to over $4 million gross.
8. The chances are nearly 60% that the fund will run smoothly on this basis for more than five years without the S&P falling by 20%, in which case he makes $15 million even if no new money comes into his fund, and even without leveraging his position.

page 331 of Neal Ferguson’s The Ascent of Money

Only the Government is Legally Allowed to Shoot

Nicholas Lawson oh you mean how in law only the government is legally allowed to fire a weapon oh you talking about that authority the one that comes from your stock pile of weapons and ammo yeah i know authority does come from having a gun you talking about that authority you have Mister President the kind that comes from how willing you are to kill someone?