Editor's Note: Ever wonder about the inception of Hedgeye? How it all started? 

Our Founder & CEO Keith McCullough's memoir Diary Of A Hedge Fund Manager written in 2009 chronicles the life and insights McCullough learned on his way "from the top, to the bottom, and back again." Below is a free excerpt.

EXCERPT: Diary of a Hedge Fund Manager - diary2


After Labor Day, a legion of hedge fund traders, the levered-long crowd, tanned, rested, and ready to rock after an August in the Hamptons, pushed down on the throttle.

During the first full week of September, the S&P 500 actually finished +2.2 percent en route to a +6.7 percent gain, between September 10 and the end of October, despite the fact that UK mortgage lender Northern Rock, having lost huge amounts of money via sub prime exposure, had an old-fashioned run on the bank, something not seen in Great Britain in a full century.

And yet, bolstered by the Fed rate cut and perhaps a sense that the “subprime crisis” could be contained because as a percentage of the overall mortgage market it was only a small piece, the equity market kept charging ahead, kept climbing higher. My shorts (Google, Williams-Sonoma, Target, Wynn Resorts) got steamrolled. Wrong again.

But then I’d think, no, I’m not wrong. I’m right.

Signals kept flashing. One was right in my face: The Carlyle Group announced it was selling a 7.5 percent stake to Mubadala Development Company of Abu Dhabi for $1.35 billion.

Every day, I filled my notebook with new information, pieces to a disturbing puzzle. I was sure I was seeing the picture emerge plainly into view.

  • October 3, 2007>N Rock up 10% on J.C. Flowers/Cerberus speculation: Hope syndrome to a market is like cancer…
  • October 8>(written next to a clipping of a story about a 26-year-old hedge fund trader losing $353 million) Bull market absurdity…
  • October 15>(next to a clipping of Barron’s headline, Just How High Can China Go?) <peaking sentiment

Same day, October 15> Fox BIZ Channel LAUNCHES<mkt top

One of the last things I wrote in that particular notebook, which covered August/September/October 2007, was after the last trading day of October.

I quoted an old proverb: “Listen or thy tongue will keep thee deaf.”