Hedge Funds, basic facts ?

gonk said:
Ah lads, I thought you were going to give us the basic facts . . . .
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Survivorship bias is the tendency for poor performers to drop out and close, leaving the stronger performers. This creates an overestimation of past returns.

Backfill bias is the tendency for funds to only start reporting their returns after a number of good years, once again creating an overestimation of past returns.
 
Not all hedge funds will return your money after enormous management fees. Even if it does return handsomely, most of the winning funds are already closed from further investments.

So hedge funds are cool to many but the risks are there. Just the fees will set you back already. If a fund can't even perform 20% year in year out, it's very difficult to get decent returns, if it manages to avoid losses. Not to mention the taxman if you do make back a dime.
 
I posted a link to a study on hedge funds on another thread some time ago - the conclusion of the study, as far as I recall, was that since they are unregulated they only report the good news/returns; so results of funds suffer from reporting bias. Also, the proliferation of funds in recent years has meant that even the biased reported funds returns have reduced in the last 5 years.
 
Hedge funds is now what dotcoms was in 2000, they'll consolidate eventually with so many funds and little money to go around. I have nothing against hedge funds. The traders tend to be very successful in trading and managing large amounts of their own money. Supposedly, managing other people's money is much easier than managing your own. But when you're talking about +1000x the size of your own account, you walk like elephants and no longer as ants, whole different scenarios (and problems).
 
Nice article. Pretty much summed up what everyone here's been saying. If you do decide to start your own, here's some encouragement:

 
That article is brilliant although I rightly fear for any kid that idolizes Jim Cramer, I guess he'll grow out of it by the time he hits his mid-teens!
 
I'm sure he will. I'm not a fan of Jim Cramer myself (he's a walking ego pushing his own investments) but I have to say he's one of the few who's got enough guts to spill out dirt about the industry. I saw a video of him uncovering some schemes and manipulations wall street sometimes do.

http://youtube.com/watch?v=u9njlcsbATo&mode=related&search=

There are 3 parts, this is the first one. Interesting stuff.
 
I'm after watching a good few youtubes tonight about hedgefunds etc. (prompted by browsing on AAM :) ) including a one about a hedged trade between 2 companies which supposedly removes the market volatility risk out of the trade. And depending on the outlook for one company in the trade being positive and the other one being somewhat negative. I kind of see a logic in it, but am wondering if the gains on one half of the trade would just cancel out the losses on the other half of the trade ?
 
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