Hedge Funds and Base Industries
I was reading More Money Than God: Hedge Funds and the Making of a New Elite, a book about the history of hedge funds from the industry’s initial conception to the present day. I was impressed by the genius of the individuals in the industry. How A.W. Jones conceived a new way to profit whether the market rise or fall. Or when George Soros recognize that no human is able to grasp the whole truth, and turn that insight into a profitable trading strategy. Or when Paul Tudor Jones II make a mental simulation of the market to better control his emotion during market chaos. Or when George Soros and Stanley Druckenmiller broke the Bank of England by making sense of institutional constraint of European central banks in different countries.These people are very smart, and they are able to turn their intelligence into execution and make profit out of it.
There is one constraint for me to follow their path. I cannot do something that is either zhalim, gharar, or riba. But I think those are not an excuse not to make a killing in the market. There is still many more methods that is still profitable.
Stripped to the bare, it’s not only because they employ such un-Islamic methods that makes it possible for them to build their riches. The essence of the industry is actually information processing. Leverage, loan, currency and commodity futures, etc are just tools to gain exposure to the opportunity revealed by the insights produced by superior information processing. Even those method are not yet a thing several decades earlier. They are invented. Thus there is no limit on the possible instrument left to be discovered in the future. The already invented methods might be not so Islamic because, well, the inventors are not Muslims who have such constraints. So it is up for the us to structure the future products.I bet that it requires significant intellectual investment to create new products.
One more thing that I note though. America is a mature market, thus it is possible for sophisticated financial company like hedge funds to profit from skimming the top cream from the already healthy industry base of US. I cannot say the same for Indonesia. Maybe Indonesia’s economy is not that advanced yet so sophisticated financial plays are not yet possible to design here. One should build up the base industry first before increasing the financial depth.
Base industry are very operational in nature. Serve customer the products or service that they want and get money in return. Use the capital to produce more, to distribute wider, to enlarge the company, to market the product to new customers, to increase human capital to better perform employees, and so on and so forth. If the base industry is strong, they would have ample cash in reserve, the capital markets would be more advanced, and the regulation would be more accommodating.
Heck, you might accidentally be a billionaire trying to build these base industries before you even play in the financial services.