What Is A Hedge Fund?

moneyHedge funds are supposed to make money for their investors regardless of market conditions. They can trace their roots back to a man called Alfred Winslow Jones who is regarded as the brainchild of this type of fund.

AWJ reckoned that he could make money regardless of market conditions. His strategy involved buying undervalued shares and selling overvalued ones. He reckoned that this was a good way to make money regardless of whether the market went up or down.

He believed that if the market rose, his pick of undervalued shares might rise faster. But if the market should fall, then his crop of overvalued shares might fall more heavily. He believed that this was a head I win, tails I win strategy that relied on his skill as a stock picker rather than what the market might do. His strategy also involved borrowing money to help improve the returns.

Today’s hedge funds are ostensibly more sophisticated, though the principles remain the same. The good hedge fund manager will attempt to exploit mid-priced investments by using options and other derivatives. However, the question is whether all hedge fund managers can be good.

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