SPECULATION

Event-driven investments, inflection points ..and how I made 32x my money in two weeks

My favourite part of the book The Big Short* is the narration Lewis gives of Jamie Mai and Charlie Ledley’s investment strategy at Cornwall Capital Management. Over a period of four years from 2002 to 2006, the hedge fund famously grew from two friends operating out of a Berkeley garage with $110,000 “in a Schwab account” to managing over $120 million after the subprime crisis. How did they do it?

Event-driven investing

At the tender age of 30 neither Jamie or Charlie had much experience with managing money, or even making actual investment decisions on their own. From their brief stints working in private equity, the only tangible experience they had come away with were two views of the world which would eventually end up guiding their investment decisions:

1. Public markets are less efficient, due diligent and prudent than private markets; and
2. Investors in public markets as a consequence typically end up with much narrower interests and focus, often missing the bigger, overall picture of what is going on.

In other words, in their view, mechanisms in the public market were most always likely to be more flawed and prone to erroneous assumptions and/or calculations than mechanisms in private markets.

Taking their view of the world to the market, Cornwall Capital first hit it big when…