The modern day investment warrior has to be the hedge fund manager. These things are amazing. They basically exist to maximize returns for these people any way possible. In fact, the managers get paid according to their performance.
Hedge funds are not as regulated as other financial organizations, and can basically be as "creative" as they want in making the investments.
Just to review…The idea is to buy a company as an investment, keeping the existing management on board and taking an advisory role in running the company.
First off, Hedge Funds introduced the idea of leverage, which basically means to finance the business so you can buy a bigger business with someone else's money. This is, of course, a personal preference, and I've never been a fan. Here's what Warren Buffet says:
"I've seen more people fail because of liquor and leverage – leverage being borrowed money. You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing."
So hedge fund manager William Ackman is sniffing for a deal. He likes Barnes & Noble, the booksellers. But he's a money guy. He partners with Border's, one of Barnes & Noble's rivals and together they go after Barnes & Noble. They've got the money and the partner who has the knowledge. Perfect.
This caused a huge light bulb for me. What if we put together a company that helps people who want to buy these types of businesses for investment, and then we use our business success and knowledge, along with the existing management to manage and grow that investment?
Let's talk in detail about how it would work, and then I'll give an example, along with some comparisons to other investments. Oh, and by the way…see the painting at the top of this page? The hedge fund business made Adam Sender so stinking rich he has a billion dollar modern art collection, with enough pieces to loan that one to the Metropolitan Museum of Art in NYC. Good work if you can get it.
Let's take a closer look at this idea.
