Carried Interest

He managed other people's money for thirty-one years, compounded at thirteen per cent for twenty-two of them, and died in a room with one lamp in it.

A novel. When his son clears the apartment he finds a locked drawer, a key sitting in the pencil cup in plain sight, and two identical notebooks. The first is titled Positions — what I owned and why. The second is titled Costs — what it took, kept in the same format, with the same discipline, for the same twenty-two years.

The method is given away completely. The four questions he asked of every business. How to read an annual report backwards and why. The seven things that made him stop reading. The one calculation that separates a machine that funds its own growth from one that does not. The three — only three — reasons he ever sold. The rule about position size he did not break once in twenty-eight years, and the 1994 loss that taught it to him. Four complete entries are reproduced and worked through, including the one that went to zero and the one he declined that went up elevenfold.

And then the second notebook, which is the reason the book exists: a forty-minute phone call taken during a ninth birthday party, a column of weekends counted back to 1996, eleven entries where the fourth heading is left blank, and a five-page proposal to change his life that he costed, reviewed, and declined — twice a year, for six years, until he ran out of them.

A novel in five parts, fifty-one chapters and an epilogue. Includes the blank pages: the four templates the method runs on, set out to be copied by hand.

Please note: Carried Interest is a work of fiction. The narrator, his father, the firm, the companies and the track record in it are invented. Nothing in this book is investment advice, a recommendation to buy or sell anything, or a promise of any outcome — the method in it is explored through a story, not offered as guidance.

Contents

• PART ONE — THE ESTATE
• 1. The Apartment on Eighty-Sixth Street
• 2. Two Ledgers
• 3. What He Was Worth
• 4. The Dozen Books
• 5. The Man at the Funeral Who Knew Him Better Than I Did
• 6. Why I Did Not Sell Anything for a Year
• PART TWO — THE METHOD
• 7. The First Page
• 8. What a Business Actually Is
• 9. The Four Questions
• 10. Question One: What It Does
• 11. Question Two: Who Pays, and Why They Keep Paying
• 12. Question Three: What It Earns on Tied-Up Money
• 13. Question Four: What Would Kill It
• 14. The Price, Which Comes Last
• 15. Size, and the Rule He Never Broke
• 16. The Three Reasons to Sell
• 17. How He Read an Annual Report
• 18. The Seven Things That Made Him Put It Down
• 19. Who You Are Buying From
• 20. What He Did in a Crash
• 21. The Costs Nobody Counts
• 22. The Method, On One Page
• 23. The Index Fund Chapter He Would Have Hated
• 24. Nineteen Ninety-Four
• PART THREE — FOUR ENTRIES
• 25. Entry Forty-One: The Fasteners
• 26. Entry Ninety-Seven: The One That Went to Zero
• 27. Entry One Hundred and Eighteen: The One He Did Not Buy
• 28. Entry One Hundred and Fifty-Three: March 2009
• 29. Entry Two Hundred and Six
• 30. What Two Hundred and Six Entries Add Up To
• PART FOUR — THE SECOND LEDGER
• 31. Entry: 4 January 2000
• 32. The Cost of Being Right
• 33. His Own Father
• 34. My Mother's Column
• 35. What He Wrote About Me
• 36. The Dinner Invitations
• 37. The Body Keeps Its Own Ledger
• 38. What He Was Like When He Was Happy
• 39. The Year He Nearly Stopped
• 40. The Thing He Never Recorded
• PART FIVE — THE POSITION I TOOK
• 41. The Twelve Months
• 42. The One That Fell by Half
• 43. What I Got Wrong About Him
• 44. The Letter I Did Not Send
• 45. What I Kept
• 46. What I Refused
• 47. The Arithmetic of Enough
• 48. The Third Notebook
• 49. The Pages, Blank
• 50. Carried Interest
• Epilogue