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.

Read the full article at

Click here to receive free and immediate email alerts of the latest forecasts.