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Hedge Funds – Once the Daredevils of the Financial Industry

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For many people, hedge funds are nothing more than manipulative, secretive, and risky, cult like organizations that work in mysterious and borderline-magical ways.

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In reality, hedge funds are just private investment funds that utilize a combination of non-traditional strategies to balance or hedge risks, and hence get their name.

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The bidnessmen have high regard for hedge fund managers - some of us are former hedge fund managers ourselves after all. These managers were considered financial daredevils, taking on new levels of risk with a surgical precision. Combine the risk with precision and you get the highly-effective hedging techniques, including but not limited to short selling.

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Short selling involves identifying a stock whose price is likely to decline, and borrowing the said shares from your broker and selling them in the market. The trick is to sell them at a higher price and buying them back when they hit a lower price level, so in the process the hedge fund makes money and returns the shares to the broker. All is well if the share price actually falls, if not, then all hell breaks loose.

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The major difference between a hedge fund and an investment firm is that hedge funds are supposed to thrive during times of financial crises, turbulence and chaos.

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One can say that hedge funds are like vultures, enjoying every minute of it, as they watch their prey die so they can feast on the carcass.

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Given the level of risk and expertise involved in running a hedge fund, most of them are short-lived with an average life of just between three to five years.

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But that was all in the past, since hedge funds failed to make their presence felt during the most recent crisis of 2008-2009.

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It was saddening to see that only a few hedge funds - including ours, might we add - recorded sizeable gains for investors during that period of chaos and panic.

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That was then though, and this is now. We are in a bull market, with major indices nearing all-time highs. Still, hedge fund gains are nowhere to be seen. This year, the average hedge fund return is 6%, while the market is up more than 25%. If we compare the performance of hedge funds to that of S&P 500 over the past five years, we are left with the feeling that the majority of hedge funds managers are doing only this:

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The only probable reason behind this phenomenon is the influx of stupid people posing as hedge fund managers.

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The bidnessmen are deeply saddened to see the once sharp and money-making hedge fund industry in tatters. Where have all the sharks gone?

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We sincerely hope that intelligent people come forward in the near future to take the helm of this industry once again.

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