The Wall Street memoir is becoming a literary genre in its own right, and there are many of us who cannot resist a tale of money, power and hubris. One thing worries me, however. As you explain in the book, the fund of funds managers are always watching you: "They don’t even like their guys to get too interested in charities. They don’t like you to get distracted from fund performance." Have any fund of funds managers grilled you about the time you spent writing a book?

No, but it may happen. In my case I would argue that one of the ways I think is by writing. Some people think by talking, some by looking out the window with a glass of Chardonnay in their hands. It’s a great test to write down your impressions of things and events, and go back a year later to read what you said.

That could be unnerving when you are in the business of profiting from your own "Eureka!" moments.

There are a lot of misconceptions about the hedge fund business as being, you know, the yellow brick road to wealth. It is also a street of tears for a lot of people who do not make it. A thousand new hedge funds start out with great hopes every year, and a thousand go out of business every year.

Yet so much talent is going there. You opine in the book that a wife is not elated to tell another wife that her husband is a mere broker. The best and brightest migrate to hedge funds, leaving even very affluent individuals with short shrift from wealth managers.

Unsophisticated wealthy people, at least, definitely need help with their wealth management. The problem is there aren’t a lot of good people providing help out there. I have a friend who has a substantial amount of wealth and concentrates on the hedge funds that are longtime winners. That works for him, but he has tremendous access. For a person with $20 million to $50 million, it’s a different story. There’s nothing wrong with index funds as a place to invest. And if I had only $4 million to invest, I’d put it all into index funds. At that level you don’t have the purchasing power to get really good advice.

The crowd is always wrong during market extremes, which makes you skeptical of those who foresee a real estate bust.

Commercial real estate, definitely, is still a valid investment. Properties in the U.S. are getting pretty fully priced, but markets in Japan, elsewhere in Asia and Germany are still very depressed–and very attractive. These are parts of the commercial real estate market that wealthy individuals should be involved in, but not by themselves because the entry costs require size. This is one of those times when REITs come in.

You write in the book about Otto von Bismarck and his insatiable appetite for timberland. As it turned out, timberland held its value far better than anything else in Germany over 50 years of war, inflation, surrender and depression, plus it did not require that his descendants find investment geniuses to manage their money.

I think it makes sense. I am inclined to think timberland in the U.S. is an attractive investment, maybe even very attractive, although you need $50 million to $100 million to buy in on a diversified basis. There are some REITs offering timberland, but they are not as cheap as an investor would wish.

Photo ops and public adulation may be a successful short seller’s undoing. There is the story of a hedgehog you call Jock Robinson, Prince of Blackness, who specialized in short positions in doomed stocks. When the heads of an overly optimistic company you call Casino Resorts recognized that the guy asking all those questions at their analysts’ meetings was none other than Prince Jock, they fought back and managed to turn a surefire losing property into a hot ticket.

Yes, that is one of the difficulties of being a professional short seller. The other thing that makes it a not-very-appealing business from my point of view is that you’re fighting the trend in which stocks in the U.S. go up an average of 9 percent a year. The majority of the time you get the wind in your face.

You come down hard on the large investment management firms, too, with the view that the businessmen who run them "don’t seem to know or want to know how to create an environment that can produce alpha or generate consistent absolute returns for clients. Instead, they are giant factories, in business to increase fee-paying assets under management."

I think what makes sense is the strategy used by David Swenson, who runs the Yale Endowment. He says Yale will invest money only through firms where the portfolio managers run and own the firm. No matter how good the record is, Yale will never invest money through a firm that is owned or controlled by an investment bank. Since he took over as chief investment officer in 1985, the endowment has compounded at 16.1 percent per annum, the best record of any university endowment. David was a good friend of mine when I was at Morgan Stanley, but we never got any money from him.

For individual investors, I’m not saying this is easy to do or find, but you ought to use as your wealth managers people who really have control of the business. There are some good wealth managers at big firms, and in a way they do have control of their own businesses. A wealth manager at Goldman Sachs or UBS or Morgan Stanley lives or dies on how his accounts do. Although he’s affected by the amount of compensation he gets paid, by putting something into a portfolio, in the long run, he knows he’s got to perform, so his objectives are the same as the client’s. You want to have an identity between the wealth manager and the client.

You wrote in your book’s introduction that being a professional investor is "the most intriguing, challenging and overcompensated occupation in the world." Are you overcompensated?

Sure. In a fair world, a good investment manager should make about the same amount of money that a good doctor does. I should amend that: the same money a good doctor makes, risk adjusted. A good physician is going to make a steadier stream of money than the manager of a hedge fund. Still, in general, all the way through the investment management industry, from hedge fund managers to the guys and women who run mutual funds, everyone is overcompensated.

Risk adjusted, the safest and the most overcompensated business of all is private equity. But the world has a built-in, fantastically powerful leveling mechanism. In the long run, those with excessive compensation will be leveled out.

Another character in your book is Vince, who believes the end of capitalism is nigh. Vince says the best hedges against doomsday are an assault rifle and canned goods, and maybe a home in New Zealand. He is right that most Americans have not seen true catastrophes, although 9/11 and the last hurricane season gave us a glimpse. What would you do if something unforeseen brought us to doomsday?

The trouble is, in the modern world doomsday doesn’t advertise itself. By the time it comes, it’s too late. I suppose if you are truly wealthy you ought to have a farm in the deep countryside that is totally self-sufficient, though there is no way to really protect yourself and your money. Three or four of the hedge fund managers I know have places in New Zealand. I think that’s ridiculous. If there is a derivatives failure or a nuclear attack, they’re going to get onto their G5’s and fly all the way to New Zealand? They’d run out of fuel before they got there.

It’s nice to say you can protect yourself by having $20 million in treasury notes, but in a real doomsday scenario, U.S. treasuries would likely be worthless. Some years ago in Hong Kong, I met with an elderly man who had been a general in the Chinese Nationalist army and had seen it all. He said quality jewelry was the best disaster hedge–better than gold. This kind of hedge has to be highly portable, easily hidden and very marketable. Some of the Jewish refugees from Europe in 1939 and 1940 took their jewelry and art that they could fold up. But the limitation of these assets is that they don’t earn more assets.

Here’s a true confession. The youthful Barton Biggs, an English and creative writing major at Yale who wrote short stories, was so oblivious to economics that "when the then-chairman of the Fed, William McChesney Martin, came to dinner and he and my father talked about the economy I didn’t even bother to listen."

You can only write about what you know. My short stories were about the third string quarterback and a misbehaving PFC in the Marine Corps. Nothing cosmic. Our monthly letter to investor partners is about the extent of my writing now.

Can you predict the future accurately?

Sure, sometimes. I think I predicted the future accurately in late 1999 and 2000, about tech. And obviously I predicted it inaccurately in 2004 about the price of oil.