Hedge Funds - Avoid!
Kevin Drum reiterates his point on hedge funds
Of course, this is when people trot out the standard excuse -
"If you ignore the absolute chaos that was caused during the financial crisis, hedge funds have made a ton of money".
Really?
Really?
And, "If you ignore all the stocks I own that lost money, well, I rock!".
Strangely enough, that behavior is actually true of human nature. We tend to inflate our performance when we win, and discount our performance when we lose.
Regardless, the whole point here is that you are handing over your money, and a good chunk of fees (2% of assets, 20% of profits. Oh my!) to someone who is going to make you money in good times and in bad. "Hedge", you know?
I'll let Kevin sum it up
Me, I'm betting on (b)...
Money invested in hedge funds since 2003 would have generated a return of 18% through November, according to data compiled by Hedge Fund Research.
That puts it far behind the Standard & Poor’s 500-stock index, which has generated returns of 29% over that same period, once dividends are factored in, according to Simon Lack of SL Advisors. The hedge fund underperformance is even starker when placed next to a small basket of investment grade corporate bonds, as measured by the Dow Jones Corporate Bond Index. That benchmark has gained 77% since 2003. Factor in hedge fund mangers’ customary 2% management fee and a 20% cut in profits, and the gap widens even more
Of course, this is when people trot out the standard excuse -"If you ignore the absolute chaos that was caused during the financial crisis, hedge funds have made a ton of money".
Really?
Really?
And, "If you ignore all the stocks I own that lost money, well, I rock!".
Strangely enough, that behavior is actually true of human nature. We tend to inflate our performance when we win, and discount our performance when we lose.
Regardless, the whole point here is that you are handing over your money, and a good chunk of fees (2% of assets, 20% of profits. Oh my!) to someone who is going to make you money in good times and in bad. "Hedge", you know?
I'll let Kevin sum it up
Either (a) hedge funds actually do better than outside researchers think, or (b) rich investors are really, really stupid. Is there an option C?
Me, I'm betting on (b)...
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