The Truth about Hedge Funds

The following article has been edited by me. My comments are in italic and in bold.

Recently had occasion to look at Hedge Funds For Dummies by Ann C. Logue (2007). A couple of things struck me.

• Would I get more dirty looks reading a book about Hedge Funds in a public place than I would by reading   the current equivalent to Playboy ? 
• Would I be able to read the book without getting into a series of arguments with it?

Yes, hedge funds can provide a valuable service in the economy – but the managers that manage them give

them a bad rap and theregulators that ‘supposedly’ regulate them are clueless on how to do their job.

 

Aside: The regulators are fighting a losing battle as the financial industry – for better or worse – is constantly

modifying, expanding\ and  changing, so a rule based system is always fighting yesterday’s wars.

 

So let’s peel away some of the jargon and battle some of the ignorance so that you can make an informed decision as

to whether hedge funds can be good (as opposed to inherently evil) and whether you can use them to help you

 

or your family

 

Thus the definition of a hedge fund an aggressively managed portfolio of investments that uses

 

advanced investment strategies such as leveraged, long, short and derivative positions in both

 

domestic and  international markets with the goal of generating high returns (either in an

 

absolute sense or over a specified market benchmark)

 

Legally, hedge funds are most often set up as private investment partnerships that are open to a

 

limited  number of investors and require a very large initial minimum investment. Investments in

 

hedgefunds ar   illiquid as they often require investors keep their money in the fund for at least

 

of the year

http://www.investopedia.com/terms/h/hedgefund.asp

So let’s review the comment made by Ms Logue: “Not all hedge fund managers are performing financial alchemy. Many

of  the techniques they use are available to any investor who wants to increase  return relative to the amount o

 

 

f risk taken.”

 

We agree with her so much. Many of the techniques are available to financial literate people. The ‘alchemy’ part throws people off.

The definition of alchemy: “the pseudoscientific predecessor of chemistry that sought a method of

transmuting   base metals into gold.”

 

 

It conjures up images of a quaint or quasi mad medieval philosopher on a fool’s quest. After


all who would believe?

• That you could speak to someone over hundreds of miles by using strings

• That you could heat up sand, draw pictures on it and it would allow me the power to write
  
  
  
  
  this article
  
  
   
• That you could use a ‘special’ card to buy your provisions for the week
   
• That you could use the same card to transport yourself 1200 miles in a couple of hour
  

 

Nonsense, right?

As we have seen in this Information Age that the power of invention and discovery is still amongst us and it only seems ridiculous until you find a way to do it.

Some very smart people have devoted their lives and in some cases fortunes, to an activity that was unheard for most a hundred years ago. Financial alchemy exists. Let’s follow Giovanni as he discovers how to use it for his and your advantage.

alchemy  (lk-m)

A medieval philosophy and early form of chemistry whose aims were the transmutation of base metals into gold, the

discovery of a cure for all diseases, and the preparation of a potion that gives eternal youth. The imagined substance

capable of turning other metals into gold was called the philosophers' stone.

A Closer Look Because their goals were so unrealistic, and because they had so little success in achieving them, the

practitioners of alchemy in the Middle Ages got a reputation as fakers and con artists. But this reputation is not fully

deserved. While they never succeeded in turning lead into gold (one of their main goals), they did make discoveries that

helped to shape modern chemistry. Alchemists invented early forms of some of the laboratory equipment used today,

including beakers, crucibles, filters, and stirring rods. They also discovered and purified a number of chemical

elements, including mercury, sulfur, and arsenic. And the methods they developed  to separate mixtures and purify

compounds by distillation and extraction are still important.

 

Unlimited Wealthby Paul Zane Pilzer

I began my studies at Wharton Graduate Business School in 1975 with this belief: that human suffering and social injustice reflected nothing more than our failure to use the tools that God had given us.”

 

See Preface from Unlimited Wealth

Excerpt from Unlimited Wealth — Introduction

For the past four hundred years, virtually all practitioners of the dismal science we call economics have agreed on one basic premise: namely that a society’s wealth is determined by its supply of physical resources–its land, labor, minerals, water, and so on.  And underlying this premise has been another, even more profound, assumption–one supposedly so obvious that it is rarely mentioned: namely, that the entire world contains a limited amount of these physical resources.

This means, from an economic point of view, that life is what the mathematicians call a zero-sum game.  After all, if there are only limited resources, one person’s gain must be another person’s loss; the richer one person is, the poorer his neighbors must be.

Over the centuries, this view of the world has been responsible for innumerable wars, revolutions, political movements, government policies, business strategies, and possibly a religion or two.

Once upon a time, it may even have been true.  But not anymore.

Whether or not we ever did, today we do not live in a resource-scarce environment.  That may seem hard to believe, but the businessperson and the politician–as well as the butcher, the baker, and the candlestick maker–who
continue to behave as if they were operating in the old zero-sum world will soon find themselves eclipsed by those who recognize the new realities and react accordingly.

What are these new realities?  To put it simply, we live today in a world ofeffectively unlimited resources–a world of unlimited wealth.  In short, we live in what one might call a new Alchemic world.

The ancient alchemists sought to discover the secret of turning base metals into gold; they tried to create great value where little existed before.  But an analysis of their writings shows that they were on a spiritual as well as a monetary quest.  They believed that by discovering how to make gold they could offer unlimited prosperity to all of God’s children.  And, although in our era the term alchemy is often equated with “false science” and fraud, the ancient alchemists were successful in their quest in a manner that they could not have anticipated.

Consider this: if the ancient alchemists had succeeded in fabricating gold, gold would have become worthless and their efforts would have been for naught. Yet, through their attempts to make gold, they laid the foundation for modern science, which today has accomplished exactly what the alchemists hoped to achieve: the ability to create great value where little existed before.  We have achieved this ability through the most common, the most powerful, and the most consistently underestimated force in our lives today–technology.

In the alchemic world in which we now live, a society’s wealth is still a function of its physical resources, as traditional economics has long maintained.  But unlike the outdated economist, the alchemist of today recognizes that technology controls both the definition and the supply of physical resources.  In fact, for the past few decades, it has been the backlog of unimplemented technological advances, rather than unused physical resources, that has been the determinant of real growth.

 

There is no such thing as unlimited growth. We live on globe. Resources are finite. The problem with

 

hedgefunds is if you have to aggressive market them they are probably bad investment. There is a

 

funny guy named Matt, he loves aggresive marketing strategies and 9/10 times he gets balls busted

 

because he  loves hedge funds.

The problem with books like the above and its authors are they so smart they would be rich. The reason

 

it is  a truism , people know a good thing when they see it. The ancient alchemists did produce gold. I

 

have an  uncle who is top surgeon and medical researcher. I asked him about the Triumphant Chariot of

 

Antimony  and asked it it was feasible to produce the medicine. He told me it was, but it be very costly

 

Alchemy is high energy chemistry.