Salient to Investors:
Bob Rice at Tangent Capital writes:
- Despite negative headlines, sophisticated institutions keep adding to their $2 trillion invested in hedge funds.
- Benjamin Graham devised a way to make money regardless of market direction by buying a stock he liked, and simultaneously selling short one he didn’t. Over the past 30 years of highly volatile markets, Graham’s approach has returned 5 times as much as the indexes. So-called underperformance during shorter-term market rallies is the price paid for the protection provided, and smart investors don’t mind paying for life insurance and failing to die.
- The only common feature of all hedge funds is a specific pooled-investment legal format. Hedge funds pursue different strategies, in disparate asset classes, with divergent investment goals – at least a dozen major hedge-fund categories, and hundreds of permutations.
- Articles focusing on a combined-performance statistic for all hedge funds are the equivalent of a sports story that averages the scores of teams.
- The difference in performance between the top and bottom 10% of hedge funds in any given strategy is enormous, much greater than it is in the stock-picking world.
- An awful lot of hedge-fund managers charge Tiffany prices for Kmart merchandise. The common 2% annual management fee and over 20% of any profits earned model is tough to justify in today’s return environment – most managers don’t deserve what the stars earn.
- The $2 trillion in hedge funds tells us that many savvy investors don’t want to make all-in, one-way bets on the stock market. They want downside protection and broader opportunities for profit.
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