Hedge Funds

You read and hear a lot about hedge funds. Unfortunately, most of what you hear is negative because it comes from the major media that has an interest in reporting negatives about them because the major media is supported by so-called standard mutual funds and brokerage companies that spend big bucks for advertising. Hedge funds are NOT allowed to advertise.

First of all a hedge fund is almost identical to a mutual fund. There have actually been fewer fraud complaints about hedge funds than about mutual funds. That doesn't mean they don't lose money just as regular mutual funds do.

The underperformance of mutual funds is not highlighted in the press; you don't bite the hand that feeds you. I'm talking about advertising revenues. Would Janus, Invesco, Vanguard or any big fund family continue to place advertising dollars with someone who told stories about their losing funds or recommended that investors sell them to find a better performer? Hardly.

Mutual funds use customers' money to buy stock and bonds. Hedge funds are not limited to what they can buy. The can buy or short sell derivatives, commodities, options, oil and gas leases, freight rates and even take an investor's money to the race track (although I doubt if they would). The managers of these funds are specialists in their field of knowledge and many do extremely well. Just because they are different doesn't make them bad. Like all investments you must know where your money is going and how it is going to be invested.

The one major difference is how the fund manager is paid. Regular mutual fund managers are paid on how much money they manage and NOT on performance. Hedge fund managers usually receive 1% of the fund assets that goes for expenses and 20% of the profits they make for their investors. In other words if they don't make a profit for you they don't get paid. I sure would like to see them do that in regular mutual funds, but the Securities and Exchange Commission is the captive of the mutual fund industry so don't hold your breath. The true ability of fund managers would be exposed and many funds would disappear as the smart investors would be transferring their money to fund managers who have winning records every year. Yes, every year. No more of the nonsense of how they beat the S&P500 by 5% yet lost your money.

So many of the hedge fund articles say the investors are being hood winked into putting money into these funds. I don't think so. Almost every big state and corporate pension plan, university endowment, charitable trust and other large financial plans have money in hedge funds. Like any cautious investor they did their due diligence to find out the track record and management capabilities of the hedge fund.

You have to be rich to put money into a hedge fund. They require an income of $200,000 per year and assets of one million or more. Many require large initial investments.

If you qualify they are definitely a better place than a regular mutual fund, but you must do your due diligence.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

---

Cash

How many people went to a cash position this week?... Read More

A Stock Market Investment Strategy

I feel that an investment strategy in the stock market... Read More

Choosing A Fund

For years I have been saying you must have a... Read More

Quality Investment Information: Standing Firm In the Face of Opposition

THERE'S SOMETHING TO BE SAID FOR standing firm in the... Read More

Take The Time

You must take the time once a month to review... Read More

Economists #2

Economists know more about how the fragments of society work... Read More

I Love You, Warren Buffet

Sometime around 1980, can't remember exactly, there was a flight... Read More

Good Stock Market Tip; Good Return!

Forget making a profit; instead focus on the income provided... Read More

Mid-Cap Stocks: Asset Class with an Identity Crisis

Much like the middle child, mid-cap stocks have long struggled... Read More

Living Trust Investing: Income Considerations when the Grantor Dies

A common problem I often see when working with living... Read More

Shorting Stocks ? The Basics, Part II of II

After the publication of the first part of this two... Read More

Stocks & Oil, Sat Jun 18th, 2005

Both the stock market and oil prices rallied recently, which... Read More

Stock Trading Success

The ABC's of Stock Trading SuccessStock trading success...why is it... Read More

Stock Market Investing Odds

The greatest stock market myth is the idea that investing... Read More

Pamplona, the Wild Investment Bulls

You remember (they show it on TV every year) the... Read More

Maximizing a Stock Market Investment

Maximizing a stock market investmentThere are several factors an investor... Read More

Trading Systems

To become a successful trader you must have some kind... Read More

Why Technical Indicators

The fight continues to rage among traders who use technical... Read More

Stock and Fund Dividends

When is a dividend not a dividend?The latest thing "conservative"... Read More

Stock Market Diversification

In one of my previous articles (Investing in the stock... Read More

Why Buy and Hold?

Since I can remember, and that's a long time ago,... Read More

Choosing a Stock Broker

If you were to find that you had some severe... Read More

Bollinger Bands Strategies

The Bollinger Band theory is designed to depict the volatility... Read More

Forecasting the Stock Market

Every day I see in the financial section of newspapers... Read More

Stuff

I continually hear from economists, talking heads, other market letter... Read More

Dont Ask Your Broker

Unfortunately, most of you who are reading my column are... Read More

The Stock Market Doesnt Care if You are a Beginner?. Get Prepared to Succeed at Trading

Stock trading remains a very competitive field and the stock... Read More

How Covered Calls Turned a Trader Around

Sidney felt sick as she looked at her latest OptionsXpress... Read More

Stock Investment Advice

Stock investment advice is easy to find. Do you get... Read More

The Golden Goose is Sick

It is finally catching up with them. The brokerage companies... Read More

Stock Insurance

You have a lock on your house. You have a... Read More

Adding Funds

Someday you may want to retire and continue to live... Read More

The Club

Yesterday I received my monthly issue of MONEY magazine. This... Read More