I've been demonstating my point of view by using gambling analogies.Originally Posted by TheHeathens
I've been demonstating my point of view by using gambling analogies.
What are they on about?
Come on Margarine ship-shape.
I'l have to ask Grouse.
I am always cautious about anybody who advises people.If investing was not a gamble why do they rely on using other peoples money to invest with ? If i had a safe "no lose" formula,which is what so called experts claim they have,why tell anyone ??? Why not use your own cash,invest for a few years,rake in the cash.You could retire early and live happily ever after
A hedge fund at it simplest looks to make money in both rising and falling stock markets, in principle a good thing you'd have thought if it can be done. A hedge fund looks to borrow stock that is falling in value, sell it and then buy it back (hopefully at a lower price) before giving it back to the original lender and thereby making a profit on the fall in value - ie borrow some shares and sell them for a £1 each but manage to buy them back for 60p to make a 40p profit on each share. This is short selling, the practise recently put on hold by the government.
A hedge fund also borrows money to increase its stake in investments that are envisaged will do well; they if you like gear up so as to be able to buy as much of a good thing as possible.
The mere fact that a hedge fund can make money in both directions, a rising and falling market, can make them a really useful part of a balanced investment portfolio. They are risky viewed in isolation but, because their risk is so different to the risks of other forms of investment (stocks, shares, gilts, commodities, bonds, property and cash) by including them in a corner of their investments, investors can in fact reduce their overall risk and the overall volatility of their investments. Daft but true.
That said having the short selling side of the equation knocked on the head and the borrowing side becoming much more difficult some of these funds are now caught between a rock and a hard place.
Here ends the stolly lesson on Hedge funds
Last edited by Stolly; 02-10-2008 at 11:21 PM.
Are they privetised then?
Re: Get all cash out of the ba
Stolly just to correct you on one thing. Firstly the SFA has only banned short selling in financial stocks, not the whole market, plus they've only banned it for 3 months.
I agree about the diversification but its worth pointing out a few other things, firstly many (and certainly the most successful) are not open to mere mortals, you need at least £500k to invest in some of them.
Secondly they are expensive, many were operating a 2 and 20 charging structure, ie 2% of assets management fee and 20% of outperformance of their target (nearly always cash).
Thirdly the market has become flooded with them with many mainstream fund management organisations offering them and like any asset class, that sees massive growth, performance tends towards the mean as opportunites become more scarce due to the weight of money chasing them.
Finally they can become very illiquid when you want your money out as lots of investors tend to want it out at the same time and already funds are putting time bans on redemptions of up to 6 months.
There ends the Bladerunner lesson on hedgies
It's illegal to advise that unit linked investments can't go down, unless it's a guaranteed product.
Do they? Care to point us in that direction? I've not come across anyone who guaranteed a no lose formula. Easy point to remember; if it sounds too good to be true, it probably is!
They do. Stockbrokers? You've got to build a capital base though.Why not use your own cash,invest for a few years,rake in the cash.You could retire early and live happily ever after
Last edited by TheHeathens; 03-10-2008 at 09:38 AM.
That's all well and good, but who mentioned Hedge fund??? Stop doing that spin thing!
Definition of hedge (other than the botanic variety):
Gambling:"an act or means of preventing complete loss of an investment, or the like, with a partially counterbalancing or qualifying one."
As investment doesn't involve chance (it involves risk), it's not gambling by definition."to stake or risk money, or anything of value, on the outcome of something involving chance: to gamble on a toss of the dice."
In diversification, you select the areas you think are going to do well and spread the investment. The areas you don't think are going to do well, you don't invest in (we don't invest in Property or Japan).
You may not get the highest returns of the single highest area, but you are taking much less risk as diversification lowers risk (proven - research it)
There is a direct correlation between risk and return and the trick is finding the balance commensurate with your risk profile.
If you had someone with a risk profile of 4, you wouldn't stick them all in stocks and shares due to the risk, so you would diversify across fixed interest investment (which have lower volatility) and shares (higher volatility). This would limit the potential returns, but that's what you sacrifice to keep the investments in line with your risk profile. It would of course, limit the potential losses.
Last edited by TheHeathens; 03-10-2008 at 12:37 PM.
Assessing what you've actually said over the thread, it seems your opinion boils down like this:
1) Diversification isn't good (neither are mutual funds, ETFs, or betting on a single colour in roulette).
2) It's better to invest in a single area you were convinced was going to do well because you get better returns than spreading the investment.
3) You wouldn't invest in a single area because you don't 'gamble on conviction'.
Now, surely you can see you're contradicting yourself massively there?
If investments are gambling, why are the best investors consistently the best investors? If it was truly gambling (based on chance) then the returns would be spread more evenly.
Last edited by TheHeathens; 03-10-2008 at 12:38 PM.
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