Summary of book Hedgehogging by Barton Biggs --------------------------------------Against Short-termism: Investors give pressures to fund managers to avoid drawdo wns

and also hand those who do so more money. As a result most money at hedge fu nds are run with an obsession of drawdown avoidance in mind. Stop-loss limits an d realtime loss control mechanism step in mechanically, and focus on momentum an d short term swings rules. These decisions are often not the right decision for the investments and should create opportunity for people who keep a long term ti meframe and who can accept volatility. Idea Generation and Patience: Trade idea comes from an accumulated knowledge bas e. Specific ideas are often sparked at hoc and cannot be forced. Before these sp arks go off, it is important to have to patience to stay close to shore. The pro per way to have superior performance is to have only a few big bets on where you 've developed an edge and have real conviction on. Deep analysis can get you in deep trouble: People have a tendency to acccept dat a that supports their initial beliefs and reject info and interpretation that do esn't. Fooled by randomness: When an investor focuses on short-time price action, he is observing the variability of the portfolio, not the returns -- he is being 'foo led by randomness'. Our emotions are not designed to understand this key point, but as investors we need to come to grips with our emotional liabilities. First-Year Phenomenon: a high percentage of new hedge funds that do survive find that their best performance was in the first year. This can be possibly explain ed by the fact that when people start from scratch, they pick the best positions at the moment but in subsequent years, an unrecognized, subconscious and emotio nal hang-ups block investors from impartial decisions and the stale parts of the portfolio get in the way of performance. A bias against switching comes from bo th an unwillingness to give up on a underperforming position (for fear of being wrong twice and seeing it run right after you give up) and a wishfulness to hang on to an outperforming position (for hope of even more gains after risk-reward has become different). Remember: The stock doesn't know you own it." Don't Try Catching Best Price: Only egotists or fools try to pick tops and botto ms. Yale Endowments Investment Principles: 1) be owners not lenders 2) diversify not market-time 3) select superior managers in opaque/illquid market 4) use outside managers for all but the most routine investments 5) choose investments firms r un by investors, not business managers who aims to grow assets but not returns. Groupthink: As Nietzsche said, madness is the exception in individuals but the r ule in crowds. Group leaders should establish an atmosphere that fosters "intell ectual suspicion amidst personal trust." Rule to Rethink: Whenever an investment goes against you by say 10%, make it a r ule to rethink and reach a conscious decision between either: a) nothing has cha nged except the price and the original analysis is right -> buy more or b) somet hing other than price changed or your conviction decreased -> sell some. No lazy status quo. Importance of Reading: "I have said that in my whole life, I have known no wise person over a broad subject matter area who didn't read all the time--none, zero . Now I know all kinds of shrewd people who by staying within a narrow area can do very well without reading. But investment is a broad area. So if you think yo u're going to be good at it and not read all the time, you have a different idea

than I do You'd be amazed at how much Warren reads. You'd be amazed at how much I read." -- Charlie Munger, 2003. A disciplined reader has a keen eye and wastes no time no junk research but cont inually look for the pearl of knowledge. Compulsion to clean the inbox and tidy the desk hurt rather than help because it takes away your thinking time. Newspap ers may be a better source of corporate news than brokerage research, which are often just biased reporting of what has already happened. Fund-of-funds as today's Portfolio Insurance: Suppose a big fund of funds lost s erious money and knockouts are activated. It would redeem from its hedge funds, who may have to liquidate irrespective of investment conditions. These hedge fun ds would push price against themselves in the liquidation and may alarm other fu nd of funds investors to redeem. Ripples and rumor spreads and panic sets in. Patience: As Buffet said, the great thing about being an investor is that you ar e a batter who don't need to swing. Mr Market is never tired of pitching and you pick the spots you want to swing. If you are patient, the odds are with you. Th e sports analogy can be extended because the more you want to push for it, the m ore difficult it becomes. The more confident you are, the better you play. A rel axed, obsessive investor is the best. Bubbles: Bubbles have a nasty tendency to last much longer than even the most ex perienced market student can believe and killing most of the skeptics in the pro cess. Gold: the elasticity of a positively sloped investment demand function overwhelm s the inelasticity of supply. Only 18% of the gold mined throughout history is h eld in investment form, at about $200bn (end of 2005 price?). Eagerness to Trade Cost You Money: "The game of professional investment is intol erably boring and over-exacting to anyone who is entirely exempt from the gambli ng instinct; whilst he who has it must pay to this propensity the appropriate to ll." -- Keynes