Oldest known version of this page was edited on 2005-10-01 19:57:59 by RichardBerg []
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Originally posted by cepheid:
Hedge funds.
So long as we're being serious, cepheid's on the right track. If you really want to take on large amounts of risk (while giving yourself at least the potential for due compensation; gambling is always -EV), you need access to private equity, venture capital, real assets, and lots of leverage to drive it all. Sounds like a hedge fund to me.
Beware, high entry fees aside, many of them are extremely costly (>2%). A lot of my friends from college work at hedge funds, and trust me their brains don't come cheap, much less those of their superiors.
Since there are no disclosure requirements, you also need to be extremely careful that you're getting what you think you're getting. Catering to the ultra wealthy, their marketing is more style than substance, even compared with mutual funds' glossy magazine ads & golf tournament commercials.
At least the latter are required to quote alpha & beta on their prospectus while reminding you that past performance is meaningless. Lots of hedge funds, meanwhile, market themselves as "risk-tailored" or other buzzwords that mask their perils. (A decent intro article∞ on this phenomenon ran in yesterday's NYT.) Meanwhile, since they silently open & close so often, the selection bias inherent in their performance is even more devastating. I.e., even if outperformance over the previous 1 or 5 or 10 years had any correlation with future outperformance*, the view would still be skewed because today's crop of funds doesn't include all of the ones that went bust during that period.
Picking a winning hedge manager in advance is just as difficult as with mutual funds (which many smart people consider intractable). That's fine I suppose -- most people are apparently comfortable with active management -- but here the stakes are much higher. Once you get to the 15yr+ horizon, even a mediocre mutual fund will approximate its benchmark minus its expense ratio. A mediocre hedge fund has a high chance of losing your shirt long before then.
Anyway, this isn't meant to be a slam on hedge funds. Like I said, I know a lot of people in the industry, and they provide a necessary service. Despite their expense, accounts in the 8+ digit range need them in order to adequately diversify; for the rest of us, they help keep our parts of the market efficient. If individual investors feel like they really need hedge fund-like pieces in their portfolio, they might look at Hussman∞. For "only" 1.17% you get what seems like an honest & intelligent strategic asset.
*unfortunately the correlation coefficient is negative for both hedge funds & mutual funds...real shame...
Is that the right link, wb? Doesn't appear to have anything to do with the topic. Hedge fund managers use derivatives, sure, but they definitely don't buy them from junior associates at Morgan Stanley.
I'm sure the book's refrains are familiar & truthful -- financial salesmen are slimey; Wall Street is dominated by unrestrained profit-mongering at investors' expense -- but if you want to read about bashing the industry, you may as well learn something useful in the process. Conveniently enough, looks like Swenson is getting another round of press∞ today.
Anyone care to post Symbols for pennies they think will take off? A justification would be nice too.
Google for "penny stocks" and look at the huge variety of people are willing to sell you advice. If it were actually possible to predict the future, don't you think they'd keep the info to themselves and earn way more than 5 easy payments of $19.99?
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