How a Communist Built The World's First Hedge Fund

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Alfred Winslow Jones created the world’s first hedge fund and changed the financial landscape forever. [1]
Yet, he didn’t start out as an investment banker. In fact, he started out as a Marxist!
His studies in sociology and career in journalism helped him figure out a neat trick for finessing the market.
At the time, his novel idea flew under the radar.
But nowadays the hedge fund industry has between two and five trillion dollars in assets. [2]
That’s why some people curse Jones’s invention.
They say his idea only helps the elites while working folk pay the price for market crashes. They say lack of regulation means hedge funds are shady, and helped cause the global financial crisis.
However, finance fans will protect Alfred Winslow Jones with an ironclad defence: hate the game, not the player.
Alfred had unknowingly strengthened the muscles he’d need to lift up the world’s financial system.
But none of it would have happened without a chance encounter.
It’s time to understand how history works as we explain “the story of the first hedge fund”.
- Sources -
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journals.openedition.org/tran...
en.wikipedia.org/wiki/More_Mo...
www.britannica.com/event/Span...
web.archive.org/web/200705242...
www.history.com/news/post-wor...
www.aei.org/research-products...
www.investopedia.com/terms/h/....
/ alfred-winslow-jones-t...
www.investopedia.com/articles...
www.bls.gov/opub/mlr/1990/09/...
www.forbes.com/advisor/invest...
www.forbes.com/profile/julian...
thoughteconomics.com/do-hedge...
www.britannica.com/topic/Peac...
nymag.com/news/features/2007/...

[@HowHistoryWorks]

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[@alexanderveritas]

_The road to _*_Hell_*_ is paved with good intentions._

[@adamharrold407]

But the road to heaven is never paved with bad intentions

[@ZZWWYZ]

Pete Buttigieg father was a Marxist scholar. Just to show that anybody who has a clue knows Marx was right. Using that knowledge for good or bad is a different song

[@user-wt9ss1dz2w]

Coming from the how money works channel, this channel is just as good

[@yubtubtime]

Great video! I'd say Jones most significant achievement is the Long-Short strategy more than the 2 and 20 though. Long-Short is still the gold standard, even if you're using AI, this, that, or the other. At the end of the day, it's all just a mechanism to pick some assets to long and others to short, and the beauty of the strategy is that it works for almost everyone with a little know-how. Jones really didn't need the hedge fund structure to fail to achieve his mission of making finance more accessible though, as Peter Lynch later demonstrated. Jones' innovation of the Long-Short strategy is only one step more complicated than Lynch's philosophy: Lynch says buy stock in the products you buy, and Jones would add to sell the stock in products you avoid. So, buy what you buy, and sell what you don't. Sounds like some Yogi Berra advice, but that's still the foundation of investing. What Peter Lynch also shows us though is that Jones didn't need to invent a new organizational structure just to fail at democratizing finance! No one listens to Lynch, despite having been a best-selling author throughout the 80s. Does his advice not work anymore? No, Apple still buys Raytheon stock as a hedge when they buy Raytheon parts, and KFC still buys Tyson stock when they buy their chicken, and so on, but individuals seem to hate the idea of doing the same with their own investments. Too many folks would still rather gamble on something they know nothing about so that they feel like one of the cool kids. On the other hand, a lot of people just don't want *any* investment risk because they've grown up in a system with so much economic *abstraction* that they think everything is way more complicated and out of their reach than it is. Given that people like Peter Lynch have *tried* to break through all the BS and jargon for people and it *still* isn't good enough to get the masses investing sensibly, I don't think this sense of "abstraction" is just the result of jargon. I think it's the result of monetary policy occluding how money and the financial system work. More than hedge funds, the Federal Reserve benefits the most from our financial ignorance because their mandate is to pull the wool over our eyes. Think about that, and how much of an uphill battle finance and investment educators have. Ultimately it's investor "protections" like individual accreditation rules that perpetuate this sense that it's all just too ✨abstract✨ for a mere mortal to comprehend...so just give your investment capital to Goldman Sachs and the other broker-dealers the State has picked as its racehorses. Most people just don't want to believe they need investment risk, and too many are checked out and cynical, so I think Jones' aim was bound to be undermined sooner or later.

[@lasgio_]

Screw off bot

[@phoenixmorphix]

@@lasgio_This comment is so dumb and unnecessary, yet meta and affirming in relation to the original comment. Wow.

[@ianglenn2821]

I agree with most of what you said except your trash-talking of the Fed. The Fed is filled with decent, apolitical, hardworking people with a sense of duty. Just like the BLS, just like the IRS, just like NOAA. When you trash-talk these people, you are spreading nasty lies that accuse these decent, boring, apolitical people of crazy conspiracies. At the end of the day, it is politicians and CEOs that seek the spotlight and money that are untrustworthy. When you say "the Fed's mandate is to pull the wool over our eyes" you discredit everything else you say, because you have no basis for such a deep and ridiculous insult towards an institution that is filled with boring honest people that constantly publish their work. The people who work for the Fed are not running a complex conspiracy, they are doing boring jobs that don't pay much. The people who tell you that climate change is real are not running a complex conspiracy, they are doing boring jobs that don't pay much. The people that tell you to wear a mask at the hospital are not running a complex conspiracy, they are doing boring jobs that don't pay much. But the people who tell you all scientists and boring institutions are running a complex conspiracy, they are the ones telling lies and making a ton of money by doing so, we need to constantly confront people who spread conspiracy madness at the boring low-paying jobs instead of the high-paying lucrative PR type jobs.

[@mulalobusinge]

Since most hedge funds underperform the market...new financial gimmicks need to rise up like a neq a.w jones

[@michaelsmith4904]

but do they underperform on a risk adjusted basis?

[@mulalobusinge]

@michaelsmith4904 on a cost adjusted basis they surely cost more with not so rosy prospects adjusted with with time

[@g.starkiller6354]

Didn't answer the question lol

[@mulalobusinge]

@g.starkiller6354 for the fees they charge versus those of an index fund...they are far too costly given that few of the hedge funds outperform the market but somehow cost more for less in results

[@OddTJ]

The purpose of a hedge fund today is not to exceed the broad market but to minimize the risk-adjusted losses of its clients. Most "regular people" take on too little risk or way too much these days, but since the "rich people" (quotes because some accredited investors are paper rich but knowledge poor) care mostly about staying rich, the HF's focus on risk abatement strategies and this drives down their performance on a total, unadjusted, return basis. It isn't a failure of the HF, it's a feature.

[@stevedes]

3:15 "returns to the US" shows image of Tokyo

[@millax-ev6yz]

He seemed like a pretty amazing guy

[@yagomizuma2275]

Hedging to this

[@johnd.5601]

It's always easy to tell when someone has never filled out a trade ticket on their own. When someone has made a few trades one year and held the shares. When someone makes a few trades a year. When someone trades every single day the market is open both long and short. There's way over 4700 Hedge funds in America. There's capital management companies and family trading companies.

[@richarddestefano6162]

Greed ruins everything

[@tuckerbugeater]

In 1932, for just under a year he was married to Anna Luise Hauser, née Block (1896-1982), a daughter of the German painter Joseph Block and a descendant of German small hat banker Joseph Mendelssohn

[@JoeRogansForehead]

“Small hat banker” Aren’t they all ?

[@mktf5582]

Francis Baring = 1700's/1800's, Cuthbert Heath, please do both of them.

[@philoslother4602]

Is it really worth it to put money into a hedge fund? 🤔🤔 Wouldn't it be just better to directly invest into the s and p 500 and similar index funds instead of shit like hedge funds, mutual funds, and blah blah

[@YvesEnergyTrading]

Generally speaking: probably yes. Some Hedge Funds really do manage to consistently outperform the market with less volatility. The emphasis is on "less volatility". Because that is really the key of why Hedge Funds exist in the first place: See, most rich people's businesses, wether it be Real Estate, Fashion or Surgeons and have you not are highly dependent on the world's economy. Hedge Funds (in theory) do not rely in what state the current economy is and that's what makes them attractive vehicle for people to diversify with.

[@ADobbin1]

Index fund are basically hedge funds.

[@YvesEnergyTrading]

@@ADobbin1 They are not at all? They're quite the opposite of Hedge Funds.

[@tomlxyz]

@@ADobbin1 The point of a hedge fund is having above market returns. An index fund is just market returns

[@tomlxyz]

In theory things like hedge funds can be very reasonable if you are very rich. There are plenty of cases where someone has an actual strategyy/product that will make a lot of money. Those people wont bother with many small investors and instead go to one/few big investors. (That in turn is also why whenever someone claims they have a winning strategy while selling it to the masses that they're is full of crap)

[@michaeljfigueroa]

Wow this comment section sucks

[@sk8razer]

5:08 "you don't have to spend 6-8 *hours* studying like doctors"

[@arminmadari4808]

I think he means 6-8 hours/day

[@MCorpReview]

Do u have the story of Paul Tudor jones?😂

[@juglardelzipa]

what if gladwell was actually able to understand something.

[@michaelblakemutschler594]

What a pristine case study in class-stratum inertia.

[@JPNAM]

What’s that?

[@michaelblakemutschler594]

@JPNAM Oh, I made it up. It's not like, a phrase from academic economics or anything. I just meant it's hard to break the ratio of class distribution. Any tool that's good for the poor is even better for the rich.

[@HotepSaoirse]

I never thought I'd have a favourite communist in my life but here it is

[@user-nu8in3ey8c]

For most people the Index Fund does a better job giving giving everyone a more equal chance of being able to own a well diversified market portfolio. That being said mutual funds and hedge funds came first, Jack Bogle was the man who made the market accessible for almost everyone.

[@bharath2508]

An Australian achieving this is commendable.

[@lylecosmopolite]

Labor Day 1929 - Memorial Day 1949: American stocks on average moved sideways. Once it became clear (in December 1944) that the USA would be completely victorious in WW2, a great bull market should have begun. It did not, and many commentators in the latter 1940s predicted that the once the war was over, the Great Depression would rule the roost. Instead the market moved sideways until June 1949, then the Great 20th Century bull market began (it continues to this day. Another financial wizard who began his career as an investor and fund manager around 1950, was John Bogle, the founder of the Vanguard funds, esp. Vanguard index funds.

[@c182SkylaneRG]

A completely free market is how you wind up with Rockefellers and Vanderbilts.

[@alexanderchenf1]

This is a great lesson in hedge fund

[@nito8066]

5:07 dude code does not write itstelf

[@theoldlore]

Gee, all the meta-Marxism in finance actually makes sense now…

[@A0891BNAS]

of course. marxists know more about the so called "free-market" more than their counterpart loll. good economists study marx :) all that criticism comes with rewards.

[@Sam-ip6co]

Lol wut

[@Tarantula.8eyes]

lol even the word Capitalism was popularised by Marx. Capitalists can call themselves that because of him today.

[@priyankavaidya8797]

Aww a reverse peace corp. I love this guy!!

[@sourabhmayekar3354]

Nice

[@michaeljfigueroa]

What part?

[@MaulikParmar210]

"You don't need to study for 8 to 10hrs like doctors" to enter tech market is the biggest lie you'll ever tell to sell without mentioning how many people survive after 1 or 2 years in industry. Thats an insult similar to "You don't need an economics degree to understand small details of the economy" Many do sell this dream, it's just like stock gambling if you don't know what you're doing. All these professions do require constant improvement and constant learning and no such course can benefit in real world problem solving tasks. The barrier to entry is already high in many fields but the ignorance of the people has no low :)

[@v3prhunterkiller828]

is this what some call horseshoe theory?

[@raheelrehm]

😊

[@NorroTaku]

There is no such thing as a "free" market There is forces upon us all Be they regulatory or biologically

[@greatestever8169]

Do what works no matter what “side” of a belief it’s on! 😂❤ people get in their own way! Mostly by adopted beliefs haha 🤣

[@sakarikaristo4976]

Not true. Benjamin Graham had the first hegde fund.

[@BrandonStubbs-ge3cl]

Does anyone else get annoyed with the “it’s time to learn how history works” intro like 3 minutes into the video? It’s like we already started lol. Why are you stopping to tell me what we are doing?

[@rightwingsafetysquad9872]

Maybe I need to start taking this Marxism thing more seriously. Marxists seem to be great at making a lot of money in finance 😂.

[@A0891BNAS]

Why do you think the US was always scared of the USSR and now China. By being highly critical of capitalism, you know whats up. Meanwhile Americans struggle with their depreciating cars and still pay billions in taxes for repairing old road infrastructure. No high speed rail here, only car hell. At least marxists think ahead. Any good economist studies Marx. Dismissing an entire school of thought because of muh-communism is asinine.

[@Phosfit]

Gasp a communist

[@RoflcopterLamo]

Sus

[@michaeljfigueroa]

Suspecting what?

[@edstockman5584]

A summation from some classes on political theory and social policies was... Socialistic ideas look great until put into the world.

[@greatestever8169]

No machines, only hamster 🐹 wheels! Haha 🤣 stock market is all rigged

[@screenwriterjohn]

Poor people move to more developed nations for self-enrichment. No American flees to Cuba.

[@ugwuanyicollins6136]

What does this has to do with Hudgefund history 🤦🏾‍♂️

[@ugwuanyicollins6136]

And also how does these change the fact that a Communist created a HedgeFund

[@arthursage9358]

This clickbait he was not a communist he was a socialist or in today’s a standards social democrat.

[@curtissnow9546]

Wow what a big difference. Both systems only benefit the ruling class and are based on ideas from a clown who lived in a time period without light bulbs, plumbing, or quick and accessible transportation. Social democrats are wolves in sheep’s clothing: monopoly capitalists lying to the lower class to trick them into accepting a neo feudal system ran by monopolies granted special privileges by the government. Check out the Fabian society if you don’t believe me. There are no truly free market countries left and there hasn’t been for a very long time

[@LeonMortgage]

Whatever

[@vivalunt]

You don’t have a party in your country that is trying to fix inequality…

[@jonathanenglund3827]

@@vivaluntwhat do you mean?

[@A0891BNAS]

@@jonathanenglund3827 he means both parties in the US truly do not give a crap about the people

[@ArdentLion]

On June 2, 1989, Alfred Winslow Jones finally became a good communist.

[@mikitz]

The best cure for socialism is studying economics.

[@menotfunnyclips8982]

jews

[@JohnJohnson-tj2lt]

Yep

[@michaeljfigueroa]

Well at least they're not protestants. So it could be worse

[@michaeljfigueroa]

Did I mention that protestants are worse

[@DevoutSkeptic]

Were your parents siblings?

[@TheSuperBoyProject]

​@@DevoutSkepticjew