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Steve's note: This weekend's DailyWealth is an excerpt taken from Hedgehogging, written by legendary investor Barton Biggs. For the story of Peter the Great, read on…

An Investment Nymphomaniac

By Braden Copeland
Saturday, May 19, 2007

One of the investment bankers called today.

The legendary arbitrage LBO private-equity guy, Peter the Great, might be interested in putting some money into the fund. Obviously, I'd heard of Peter the Great, because the epic story of his rise on guts, gall, and brains from a Cleveland blue-collar background is well-known. The mere rumor that he was buying could set executive paunches and putters quivering from Shinnecock to the Los Angeles Country Club. I was excited.

The vast reception room at Peter the Great's office suite has a huge Oriental rug and fine antique furniture. "Peter is obsessed with getting into Blind Brook, and he has this idea that merchant banking is classy," confided the investment banker. "He's got a couple of phony Englishmen at roll-top desks in the other room, but they're just a front." On the paneled walls were framed English fox hunting prints. One of the husky young men in the reception room took our coats. "Former Special Forces," the investment banker whispered. "Ever since Peter read that Bill Gates had ex-Special Forces as bodyguards, he had to have some, too. Very big on the cloak-and-dagger stuff. Code names, disguises, secure telephones. It's like you're in the CIA."

As we waited, the banker told me more about Peter. "Very tough, competitive guy. He's an edge player. Was a wrestler in college and before a match he would chew garlic so he would smell horrible on the theory it might just slow the other guy down for a second. The guy is limelight obsessed. He wants to be the bride at every wedding and the corpse at every funeral. He's the only 50-year-old billionaire I know who still cheats at golf. Moves his ball in the rough. Compulsive about multitasking and redundancy. Always tries to do at least two things at once. I hear he has a stationary bicycle built into his limo so he can work out, read the paper, watch CNBC, and get driven to work all at the same time. Claims he sleeps only about four hours a night. Runs a real sweatshop here. Half of his analysts burn out and end up in communes in Oregon."

One of the Special Forces took us into Peter's office, a huge room with panoramic skyline view and a massive structure in the middle, which was half desk, half control center. There was no chair, but there was a Stairmaster by the desk and a set of gold-colored weights in one corner. Peter himself was a lean, deeply tanned man, coatless but beautifully dressed, with a Countess Mara tie and red suspenders. Someone had been chewing at his fingernails, though, because they were right down to the nub.

"Welcome to Battlestar Galactica," he said, gesturing at the console, built into the control center, in which numerous screens were flashing prices in different colors. The lower screens were divided into 20 sections, and, on each, a researcher or trader could be seen. Peter showed us how he could talk directly to any one of them or put anyone's face directly up on the big screen. He spoke quickly and in busts of words. "They can't get away from me, and they can't see me unless I want them to. I fired one guy who picked his nose repeatedly on my time. Discipline and control are the keys to this business."

A phone rang. We could hear snatches of the conversation, which seemed to involve whether somebody's wife was having an affair. Peter abruptly hung up. "When these corporate preppies try to block me, they better be ready to go to war!" he shouted. "My guys can dig up anything, and I'll use it. The chairman's wife is fooling around with a tennis pro," he said disgustedly, "and they think they are going to get away with trying to crown-jewel me. What is this? The Yale-Harvard game? That crud won't be able to show his face at Augusta when I get through with him."

The investment banker seemed to love it, even though I know he had gone to Yale. "Go get 'em, Peter. That's why you're so great. How can they say LBO funds are parasitic vultures that produce nothing when you're doing creative stuff like this? Big companies shouldn't be run by clowns whose wives fall for guys in short pants. You're the market economy at work, at the cutting edge of reforming the nature of capitalism, America at its best."

Peter nodded and looked at me. "Now, tell me, what do you do? What do you want?"

I went into an abbreviated version of my usual Traxis pitch, but abruptly he cut me off.

"How many bets do you usually have in your portfolio?"

"Somewhere between 20 and 25. We do use leverage so we want to have some diversification."

"I don't believe in diversification. I don't like people or wines equally, so why build a portfolio equally? Own monster positions of what you really like and leverage them up, or else you're only practicing. It's all greed versus fear, and risk control is a misallocation of energy."

I was tongue-tied. He went on: "My master is my purse! You'd better believe it! Everything is for sale except my kids and maybe my wife. I'm an investment nymphomaniac. He who has the most money when he dies, wins. But I want to do good in the world, too. With the amount of money I give away I should be a trustee of the Museum of Natural History and the Ford Foundation instead of those stingy stuffed shirts they have on their boards."

He looked at me intently. "Did you know I give a lot to charity—religious studies, funding scholarships for black kids, work on reincarnation. The press never mentions it. They just yack about how many people I fire when I buy a company. It's a conspiracy."

Suddenly his mood changed. "But I have to jump. Thanks for coming by. Good luck!"

Good investing,

Barton Biggs

Market Notes


For our chart of the week, we present the past year's trading of the Shanghai Stock Exchange.

It's up 170% in the last 12 months. The press is already full of stories of Buddhist monks and cleaning ladies making fortunes in the stock market, so we know this one must be heading for trouble… 
The problem is, it's impossible to predict when trouble will arrive. Stock market manias - like the current bubble in China - have the tendency to keep going longer than anyone expects. The Nasdaq for instance, rose over 100% in seven months in late 1999 through early 2000. Plus, the Chinese love to gamble.

In other words, the Shanghai Stock Exchange could reach 10,000 in a couple of years. But like the Nasdaq, the end of this mania will wipe out millions.

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