Dear Vic, Wiz, Professor, Doctor, Ari, Tom, Rob:
I took some notes last night and thought I would share them with you.

University of Pennsylvania has been a political hotbed over the last several weeks; we have seen some intense activity especially the last couple days. Despite my encounters with Howard Dean, Pat Buchanan, and Ed Koch in an 18 hour period, today I humbly share with you what I learned from James Dinan, who founded and runs the $4 billion event-driven hedge fund York Capital. He came to Wharton to speak last night.

Brief background:
Jamie Dinan was at Wharton Undergrad from '77-'81. He went to HBS after working for two years. Summer between 1st and 2nd year at HBS, did some work in merger and risk arb, and ultimately chose money management, while his peers went into i-banking, because he "liked it."

Made 500G in '86, but was wiped out in '87, with only 5G left to his name. '88 did well, lost in '89 on with United Airlines. Again lost money in 1990. In Fall of '91, started own firm, York Capital Management. (He chose the name because he lived on York Avenue in New York; didn't name the firm Dinan Capital because if he blew up right away, wanted nothing to do with that name!) Pointed out, fairly obviously, that is is "easy to get money when you don't want it, but hard to get it when you need it." Started out in '91 with 3 million under management, and has pretty much doubled his assets under management every year since; he has 3.9 billion as of right now.

A little on York:
York Capital Management â Net Annualized ROR Since Inception = 17.9%
In York Select, which allows for double the volatility, 24% compound for over 8 years; this fund does not use stop-loss, but buys on dips.

A little on the Industry:

Hedge funds are now the "quickest way to get rich, like the dot-coms of the late 90s." ("But don't try to get rich quick; getting rich requires patience.") But you need to continually re-invent yourself; you have to want to do it. In order to do well in this business you "have to love markets, as opposed to simply wanting to get rich. You have to be good at something." You also need to keep changing and re-inventing yourself.

Long Term Capital Management blew up in '98 because of leverage and market neutrality. "Market Neutral or Relative Value is a lousy business | even John Merriwether blew up!" ("If you screw-up, stay on Wall Street; everyone gets a 2nd, 3rd, 4th chanceâ |return 20%, 20%, 20%, then blow up! |get new investors."

You need to specialize, need to have an edge. Long/Short model is a good stock picker's game. Steve Mandel of Lone Pine ($2B under management) is the BEST in this area of specialization. York is event-driven research-driven shop "where are the inefficiencies?"

Tactical Trading Strategies are the most profitable.

Dinan cited John Henry as one of the top guys, but as SpecListers well know, it is "feast or famine." You will see 20-25% in a good year, but "no skin in a bad year." High water mark means working for free. Trend guys can do well, but Speclisters know Henry is in a long draw-down now (but at least the Red Sox beat the Yankees and made it to the world series, so it's not like he is depressed or anything!)

Expansion overseas will be crucial because of inefficiency in Asia (China); soon the rule of law will allow for those who make big money there to keep it.

A selection of Jamie Dinan quotes:

(Caveat: many of the below quotes are cliched, hackneyed, and banal, | but I share them with you nonetheless!)

"Try to make money every day." You need a loss management model in place. "Winners take care of themselves, make sure losers don't kill you."

"In the investment universe, all you are looking for is change."

"Very hard to make alpha with little beta now."

"Leverage is key."

"It doesn't matter where it goes, it matters what you do when it gets there."

"Whatever you do, make sure you're around tomorrow." Be conscious of 3
sigma events - they happen. (If my stat is correct, 1% of the time.)

"Don't wait for the last dollar of gain."

"Every day try to better yourself." You will never have perfect information (which is why every choice one makes in life is a speculation, as well elucidated by Vic), but even in the grey you can still make money. "Think of information as a mosaic -can you guess the missing pieces?"

"Life is a world of white, grey, and black - don't go into the world of black." (i.e. don't cheat because if you get caught, you're career is over - much better to lose the honest way because you will probably get another chance down the road."

"Never fall in love with anything! If facts change, re-evaluate your position!" Good traders have "no memory, they are agnostic." (Which I took to mean that if you made a great trade yesterday and made a lot of money, do not dwell on that today.)

"So many people lose money by giving a trading limit - if you want to get out, get out!"

Think of risk/reward as quadrant - "What can I make vs. what can I lose?"

"Better to try and lose, then not to try. You learn through osmosis - learn in real time."

"In investing, you are not trying to make the world a better place; you are trying to make money."

"Don't gamble; don't try to hit home-runs - it's a losing strategy, unless you're Soros, then you're the exception.

Soros to Druckenmiller: "Sometimes it pays to be the pig." (By doing things that no one else wants to do, your reward potential is much higher than taking the beaten path.)

Michael Steinhardt is tough to work for - he yelled at a new employee, "I don't want ideas, I want information." (Investing is part "art and science.")

"Some people have it, some don't. But most comes with experience. If you don't have it by day 1, don't get depressed. If you don't have it by year 3, it's probably not for you."

"Nothing wrong with trying and failing - PATIENCE!"

"Analyze risk/reward of every decision and seek asymmetrical returns." If the upside is $2, and the downside is $10, and you figure there is a 98% chance of the upside, do it."

Quick story:

So Jamie Dinan hired this smart guy who happened to be an orthodox Jew. There are a lot of orthodox Jews in the industry, by the way. So on Saturday, the orthodox Jew who works for Jamie goes to Synagogue for four hours. On Monday, he comes back to York with all these ideas, and of course Jamie is like, How did you find all this stuff out? So the Jew says, "when I'm in temple, what do you think I listen to the rabbi for 4 hours? No! We talk stocks!" In every situation, there are a few key success factors.

Recommended reading:
Michael Steinhardt: "No Bull."
Roger Lowenstein: "When Genius Failed".
Greenblat: "How To Make Money Without Being A Stock Market Genius"