I've audited hedge funds for a living and while I don't disagree with what you said, the single biggest reason I saw wealthy individuals invest in hedge funds was to protect their wealth from lawsuits and creditors. A massive amount of the investors were actually irrevocable trusts. They care far more about hiding their money from lawsuits than the diversification of their returns.
This comment was more useful than you boring my ears with filler words to make one sentence answer into a 11 minutes long video. Had to resort to comments as lost focus on subject
@@jmerch8029 This comment isn’t accurate though. Trust and corporate services industry is generally what helps rich folk hide their money trails. The video is an accurate description of the fundamentals of hedge funds, but yeah there are hybrid funds that are involved in various financial aspects.
@@jmerch8029 yet you still don't know what it is, how it works, how it is structured by hedge funds, and what it investment classes it compares to. You sound like the student who skims a summary, thinks he's smart, then fails the exam and wonder why...
@Seany uh, you clearly don't understand investing. Buying SQQQ is one of the stupidest things you can do, even if you want to hedge market risk. If you watched the video and paid attention, to the part where hedge funds short individual underperforming companies in a given sector, and go long overperforming companies in the same sector, and you did some research on statistics, you might be able to understand this strategy has far superior returns than the SQQQ (which will always lose historically given enough time).
Hedge funds were to prevent you from losing ! Then Maddoff got payment for order flow adopted ! Things changed when they realized the regulators were not really paying attention !
0:11 You're missing a lot of the beauty behind the story :) Buffet and his adversary put up a million dollars in the form of treasury bonds, and that money would go to the _charity_ of the winner's choice after the 10 year bet. The best part? Because of the financial crisis, those bonds outperformed BOTH the S&P and the hedge funds!
I don't get it. If the purpose of hedge funds is to decrease risks, then it's expected that they make less money, so why would people who know about the market bet on something that all parties expect to be true? Are there hedge funds that promise big returns, contrary to what this video says?
@@DF-ss5ep Hedge funds USED TO decrease risks. Now it's just another way for investing, promising above average returns. If hedge funds were only to 'decrease risks' there would not be tough requirements for investors.
@@DF-ss5ep . There is a myriad of hedge funds doing completely different things that the average joe will never understand. The Medallion fund, mentioned in the video, uses math and they are a high frequency trading fund - they are a cancer in my opinion. Others, like Buffett, use fundamentals and buy undervalued and often distressed companies. There is an entire universe of hedge funds between those two.
It's also a status thing... when I was in business school, I had a professor that formerly worked in the industry explain that the huge fees clients had to pay and net worth requirements they had to meet were a sort of badge of honor. They could brag on the golf course about which hedge fund(s) they were invested in.
And it raises the bar for returns, so a hedge fund with a 20% higher investment requirement will return a 20% higher payoff; at the huge amounts of money that they use that probably seems like a good return, better than market, unless you do the math.
@hanako5ever that’s different than just putting you money in a fund solely for status which no one fucking does unless they are the biggest dunce of them all source: im one of these people
@@vitsadelhole I believe these funds have sth else to offer rather than just traditional investments. Like backdoor insiders information in various industries, exclusive access to investment deals that outsiders wont be able to get in (experimental technologies,etc), perks of getting close or having direct influence/ access to high ranking Politicians, etc.
This video didn't even scratch the surface as to what hedge funds do and how they differ from one another. I work in private markets (alternative investments) and there are so many types of hedge funds that even I don't understand all of them.
Warren Buffett wins a $1,000,000: The most valuable thing to Warren Buffett was that he was right, he could care less about the bet money. Because he made WAY more money living his bet premise than winning the bet.
Yeah if that were the case the world would be better fed and the price of bricks would remain stable ! Buffet and Gates own everything via cascade investments the financial arm of the gates trust the investment arm of the gates foundation ! They have never directly spent money on charity ! They invest in things that then invest in projects ! Not sure If a single brick is sold into North America that is not produced by the four brick companies cascade owns ! The keys to the kingdom are tucked away in a little shell company that is larger than the island it sits on !
@@npcwill283 I know that's b.s., my wife was at the ceremony and worked at the non profit Warren donated the $1mil to. He and his daughter Suzy donate a s&+$load of money locally and his son Fred donated the money for the cancer research center I drive the kids to school past every day. The Buffets support a lot of causes, especially here in Omaha. So go f(&_ off with your conspiracy theory nonsense.
@@PeterDeMarco Never said he never gave any charity away ! I said that whole super friends publicity shit was a scam that money was pooled to a super fund that went out and inserted itself in so many projects ! That after giving half of their wealth away both men quadrupled their net worth ? Could have just purchased the property the charity was operating on and assigned the trust to provide payroll for 100 years just as easily ! Look at what cascade owns what gates trust owns what Berkshire owns ! Come on man they account for 40% of all corrupt usury in the markets right now !
You mentioned Ray Dalio. His whole deal is making "all weather portfolios". When you look at his returns, he doesn't beat the index, but it does more or less match it in the long run. The difference is his portfolio doesn't have volatility. He doesn't get caught up in bubbles and busts.
And then the smartest thing to do would be perhaps say you implement his strategy with very low volatility and risk, then borrow on a margin or other kind of leverage, and you can leverage up to (I think 3;1 or 4;1) without losing the Sortino Ratio (ratio of downside risk adjusted returns) below an acceptable level (Don't ever go below 1, and ideally above 2 is good), it can be further improved by using the Russell 200 index rather than other for the stock market, because the largest companies have outperformed and are less likely to go bust (or if they do more likely to get help) and to invest in XLU Utilities rather than commodities, since they perform well in just about all market conditions, and are easier to scale (eg Buying leveraged ETF). Rebalance it quarterly, and it performs better than either the market or Ray Dalio. In short, basically minimise downside risk by diversifying across asset classes that perform well in all kinds of market conditions, and then leverage it up, and watch yourself outperform the market.
@@MrSupernova111 21% first year, 42% second year, 43% third year, then wiped out by the Asian Financial Crisis. Due to having 25 to 1 leverage, 2 or 3 to 1 is reasonable if your portfolio is well-balanced even 5 to 1 can help achieve higher rates of return without adding too much risk.
Not true at all Hedge funds are just funds with a loose structure. That gives the fund manager more choice. Plenty of hedgefunds are just normal institutional investors. For example: a lot of european countries have financial regulation that limits normal mutual funds or investment firms in how long they have to wait before selling more than €10 million dollars of shares. I know it sounds weird, but there is plenty of other stupid regulation on mutual funds and investment firms. Which is why most large funds register under a PLP structure. as a hedgefund with terms of service to what EU financial law codes as hedge funds. Which is Also one of the reasons why hedge funds statistically underperform the market. Simply because mutual funds and other funds where the investment goal is to take lower risk and sacrifice return. As a result this brings than the average return of hedge funds who objective is to give no fucks about risk to achieve the highest returns possibly. So the average return of the big risk hedge funds is probably just a little bit higher than the index. Which by no means does not justify the risk they take in my opinion…
"Having uncorrelated assets means that something will always be doing well while something else is doing poorly." - you have confused "uncorrelated" for "negatively correlated". When assets are uncorrelated, one could be flat, negative, positive, or anything in between while the other is doing well. One reason is because correlation cannot be measured at a spot, but over a number of samples.
Yep, the channel lost a little credibility on this one. As I watch more and more of these finance channels the more I realize the only thing they're good at is making youtube videos. I'm a finance nerd by trade and education.
Your description of risk is very simplistic. Every investor, including diversified mutual funds, are supposed to optimizing for return given a certain amount of risk. Risk in this case is actually a terrible term since most of the time this just means standard deviation and is farm more precise than most people realize.
Rich people don't usually invest to outperform the market, they want to preserve what they have so if hedge funds still grow enough to beat inflation, it's all fine to them.
@@M.Evra91 the point is that bonds and traditional wealth preservation vehicles are shit nowadays. because inflation is so high and interest rates are low
Wait the SEC wants to protect the average investor from dubious financiers with high fees? Well, I guess they forgot the 401K industry. Or is that not high enough fees for barely giving any returns.
I work with recordkeepers in my career and every 401(k) I’ve seen has index funds as an option. I have seen one Safe harbor 401(k) that had an average cost to participant of 2.3%. We got it moved to better option. But a lot of times cost is up to the employer how much of plan costs they pay vs employees.
@@MrSupernova111 it’s not ideal. But fees are not the difference maker most of the time. And it’s still beneficial to the employee almost 100% of the time. Even if it’s not perfect plan design.
@@HUNT-DOG . For simplicity, if the average annual return of the account is 8% and the thieves take 2% then they are taking 25% of your returns. However, due to the compounding effect that 2% fee equates to a much higher loss than just 25%. Imagine you could have $1 million at retirement but the scoundrels took $250k+ for themselves leaving you with $750k. As I said, its criminal.
You always present helpful perspectives to explain topics that initially seem complicated. Your regular uploads also allow viewers to see the concepts repetitively and become more nimble financial thinkers. Thank you for your contribution to youtube.
Based on my research and based on my regression and monte carlo simulations on hedge fund, major indexes returns across the past decade, I can confidently say, hedge fund performance IS correlated to the market's performance.
I hope you don't seriously use regressions and simulations to invest your money. Assets are correlated until they aren't. Look up LTCM and see how it turned out for them.
@@MrSupernova111 Do you know how statistics work? I suggest taking an introduction to statistics course. Perhaps a beginner one might match your intellect.
@@zr60 . Let me get this straight. You're going to predict stock prices which are driven by cash flows (earnings) and economic factors using a monte carlo simulation you cooked up at home. Sure, keep dreaming son. Just because you throw in some variables and get some output it doesn't make it correct you fool.
@@MrSupernova111 Think. Think. Think about why I'm using a monte carlo simulation. I'm looking at whether hedge fund returns are correlated with market returns. How is that predicting cash flows and economic factors using monte carlo simulation? Please, learn to think.
I heard somewhere that a number of modern hedge funds have moved into investing in areas that expose them to Market risk, and so are not as safe an investment as they used to be, is that true?
Yep. It's also true that many get their hedges wrong. Ex: Bet against bitcoin, bet on gold rallying - back in 2014. Ouch. Bet against tech, bet on oil - now they're at a quadruple ouch. I have seen news blurbs where some have negative 70-80% years and liquidate immediately after, by getting their thesis and all their hedges backwards. Long only means you're right 90% of the time, because the market rises 90% of the time. Good enough for me!
It depends on the strategy. For example, running a lot of models to build a portfolio where there’s a 99% probability of a 5% return. Then to magnify that return, borrow to leverage up (say 10x) so a 99% probability that becomes a 50% return. Of course, should that other 1% negative outcome happen (or a pretty good chance of it and lenders get worried) then RIP hedge fund.
@@quantyquant3884 Jesus, this sounds exactly like what the WSB degens would do. Only differences are that these guys using other ppl money, and they get paid doing it.
@@quantyquant3884 the issue is that with such huge amounts of money you cannot leverage and you become illiquid, meaning that you will not be able to drop your portfolio fast enough before you move the market with your sell orders.... nobody will give you billion for your 100mil
The great majority of hedge funds figure to dramatically underperform reasonable bench marks like the SPY, even adjusted for risk... and this is exactly what they do. The primary reason is the large fees they charge, thlugh there are other reasons as well. A notable exception is the legendary Medallion Fund from Renaissance Technologies which is capped at ten billion and closer to outsiders.
The point of "managed" investments is not to make money for those investing. It is designed to generate never ending fees. That includes 401k, hedge funds, and special investment services.
Investing still remains a priority. The trades market have been programmed for the smart to get even wealthier, I’m 33 and have over $3mill in net-worth. Thanks to investing lifestyle
It’s almost the start of a new year and the non - investing public should really pay attention to the markets cause there’s no better time to invest than this period, I’m speaking from experience. I just dropped some cash in crypto too
Kudos mate 👍 Leaving it in investments rather than my bank accounts is one decision I’ll never regret, over the years I’ve accumulated tons of wealth from proper investments in Bitcoin, non-fungible tokens (NFTs) and stocks. Currently I plan on maximizing my gains and growing my portfolio even bigger ❤️. Let’s not forget that the biggest payouts in the markets don’t come from great performances but rather it’s great promotions. Stay invested, diversification for streams of incomes is very important
I’ll take investments in stocks any day they’re very remunerative….Only problem I’m facing is earning off it, my portfolio’s been a mess I barely even make gains. How do you go about your earnings
😂 The markets can be inundating at first but that doesn’t mean it’s not profits worthy, till today I’m still mind blown with my profits outcome investing with trade pro Noud Mikan. His system and ingeniousness gets me an average rate of 13% ROIs annually and he charges me just 1% on commission, smart and credible trader ❤️
Good video! Most journalists don't understand the difference between returns and risk-adjusted returns, and the role of correlations and market betas and alphas. Good hedge funds indeed have a role in a diversified portfolio, even though their total return may lag the S&P500. Buffett understands all this but he uses these stupid publicity stunt bets for mentions of financially illiterate journalists.
The comparison to bonds was spot on. Its not always about the highest expected return. As we say in finance, there is no arbitrage (free lunch) in finance.
Exactly why Buffet prefers that, he’s more of a private equity/ business investor than portfolios, hence why he’s disagrees with having gold in your portfolio...which is clearly to balance the portfolio.
you must have these things in mind 1. Have a long term mindset. 2. Be willing to take *risk*. 3. Be careful, if you're not spending to earn back, then stop spending. 4. Never claim to know - Ask questions and it's best you work with an assistant.
The wisest thought that is in everyone's minds today is to invest in different income flows that do not depend on the government, especially with the current economic crisis around the world. This is still a good time to invest in gold, silver and digital currencies (BTC, ETH. stock,silver and gold)
When it comes to Trade, I can confidently say that bitcoin is the best option. But most people think it's all about buying and leaving it to rise but It takes a lot more you need to trade it to earn daily.
Having to go into savings for surprise expenses like home repairs, illness and so one seems like a much more common and pressing event for ordinary people. If you are a rich person there will probably be some company claiming to be the next Facebook every week and missing out seems like nothing more than a slight inconvenience. But needing to sell your house during a housing crash or having to postpone retirement until the market recovers sound much more impactful. As a rich person you have enough money to whether a storm. You win so e, you loose some, but it doesn’t really effect your lifestyle. What’s I think would be important is longterm stability. So maybe the reason rich people invest in hedge funds isn’t because they value stability higher than others, but because they are the only ones who can. Beyond that customer service and exclusivity are probably a big factor.
They have their own issues. They try to protect their money from lawsuits and taxes. Hedge funds are basically all the financial and mathematical brainpower to protect and grow wealth.
They need to update their definition of "accredited investor" because they basically just described half the (employed) population of the Bay Area. Buy a house and wait a few years, and you probably have a net worth over 1 million. Get a software engineering job at one of the FANG companies and 200K is pretty common. But I gotta tell you, most of these people are not "sophisticated investors"
To be honest though it's a bit dumb that "unsophisticated" investors can buy options and crypto but can't invest in hedge funds. It feels like of the three, hedge funds are the least risky.
@@IamGrimalkin It's exactly why they are NOT risky, because they are regulated. NFT's and crypto would also be a lot less risky if it was regulated. Regulation simply means laws to prevent fraud. The sad thing is that humans will use any loophole to cheat another, thus why most crypto and NFT's today are scams. We do this to ourselves. We need to be regulated because we can't control our base impulses to lie, cheat, and steal.
@@MrMinecraftGamer456 > 1 million net worth expect primary residence. Yeah, I missed that caveat at first. But, nonetheless, buy a house in the bay area then leverage it to purchase cheaper rentals in another state. Or sell it an and leave the state. I know plenty who have done either or both. Here in the Bay Area, you can easily spend $1k for a car service that might cost a couple of hundred elsewhere. So, people get paid more to adjust. A $100K salary really doesn't mean much here .. that's actually the median income. They key is that 1 million dollars is not a high bar nowadays. Money breeds money and compounding works really quickly if you have a large enough amount for seed capital. A base $100K salary might come with a 20K annual bonus - that lump sum can be socked away into an investment and then compound very quickly.
I am seeking some investment guidance. It seems like I am never able to identify trends, options always go against me, and I can't utilize scanners efficiently. I am looking for a simple reproducible passive income strategy that supplements my income and eventually replace my wage income.
9:33 I don't think hedge funds are good for accessing money quickly either. Often they restrict when money can be withdrawn so in this respect they're even worse than, say, index funds.
And a good example recently is Citadel (who are crooked to the core anyways) which has recently posted that their investors can only withdraw up to 6% of their initial deposit per year. If you want to take out all your money you are going to have to pay a fat fee.
I agree with you. Uranium stocks especially (DYOR) do your own research through a professional. *Sandra* *Yvonne* *Webster* is good you can look her up.
@@NathanLewis7871 Wow! I know Sandra. Met her sometime ago here in North Carolina during a fundraiser. Great speaker, full of humor and rhetorics too…”Mrs buy the dip “. Lol
My portfolio has good companies, however was red all through last year. My first year of investing and have been down 35% in the March/April sell off, and now down 17% in the last sell off. I work hard for my money, so investing is making me a nervous sad reck. I don't know if l should sell everything and just sit and wait.
Building a good investment portfolio is more complex so l would recommend you seek professional support/guidance this way you can get strategies designed to address your unique long-term goals and financial dreams.
I've been trying to hire a professional afterall it's what wealthy people really do, they hire more experienced persons to do the job but l can't find anyone l can trust.
Frugality is an attractive quality to the majority of the population. Being frugal is about putting your dollars towards the things you care about and not overspending on the things that don't matter.
@@stjepandujmovicjp1495 Wow l know Alexia Young. Her platform maintains a unique perspective and is very transparent with their investors regardless of whether or not she outperforms l will always stay invested as her methods alone with keeping investors in touch with their strategies and outlooks are something that so few managers are capable of and they should follow suit.
This is a terrible video. Almost everything he says is wrong: - The point about uncorrelated risk is partially true as hedge funds do have access to more asset classes, but that's not why people choose hedge funds - The whole market risk section is fundamental misunderstanding of risk management, modern portfolio theory, and just how finance works in general. You can't get rid of market risk and create returns out of nothing, you have to live somewhere on the efficiency frontier and hedging is just a tool of exchanging risk for returns - Dollar cost averaging is not a magical tool to make more money, and it's certainly not why you want uncorrelated asset classes. Again, this is a fundamental misunderstanding of the theory, dollar cost averaging is much worse than just investing all your money at once on average, you're moving towards the lower-return side of the efficiency curve. Uncorrelated assets decrease risk by the simple fact that they're uncorrelated, it's a basic result derived from statistics - Billionaires mostly don't handle their own investments, it's mostly through high net-worth portions of banks with input from the individual - Rich people don't really have cash on hand; if they need money they lend it from a bank with their assets as collateral or liquidate the liquid portions of their portfolio. No sane person just has billions in a bank account, it's wasted money. - Many funds actually have lock-out periods where you *can't* withdraw your money without penalties, so actually depending on the fund it may be the more illiquid portion of a portfolio Really, the correct answer is that rich people invest just like the rest of the population. Some people get scammed by salespeople working on a commission into buying shitty products, the same way some rich people get scammed into buying shitty hedge funds that really just shadow an index anyways. The author clearly demonstrates a fundamental misunderstanding of investment theory basics. He spends an entire video explaining different ways of moving up and down the efficiency curve, and then claims that this is why hedge funds exist, which is confusing unrelated things. Hedge funds exist essentially because people hire them to make money on their behalf. A guy has the contacts from a long career in banking, gets together with a few quants and draw up a business plan, and tries to get enough money to make the plan work. That's basically it. The only other video I've come across from this channel is the one on "how banking works" which is also full of misinformation and demonstrates a complete lack of research into the financial system. My impression is that the author primarily reads a few comments on reddit and then extrapolates from there based on no real information; he would be well-served by actually sitting down with industry professionals and asking them basic questions on how everything works.
@@rightwingsafetysquad9872 Not the Steam-Buy/GME short. Those are on the same side of the bet. If Steam wins, so does your short position. Same if there’s a “broad market downturn”. I’ve spent all morning turning it over in my noggin, and it only makes sense of our boy is mistaken.
@@eriknephrongfr8847 Valve and GME are in the same sector. You are confident GME is going to decline, so you short or buy puts. You want to stay sector neutral, so you hedge that position buy buying Valve, isolating you from broad market moves. The market neutrality is what defines a hedge fund. This is a more advanced version of buying calls in a position you've shorted.
She have changed my life and financial status for the best. All thanks to my aunty who introduced me to her. She is obviously the best, trading with her gives me joy of earning
first thing to judge a hedge fund on a pure performance metric , assuming you are not looking in to protecting your funds from lawsuits and creditors as has been alluded to earlier within the thread , then simply you have to preserve your capital like a bank , then and only then you will be able to grow your initial capital , if one looks at the hedge fund performance based firstly and before everything else on maximum DD metric , then you will see most of them fail on that regard i.e. preserving your capital against extreme shocks , and it happens that those with those best maximum DD metric happens to be short-long vol funds , then short-long equity and bond funds including credit , that is the whole story I believe , lastly as confirmed by research in behavioral sciences when people(including HF managers)are asked to take decisions under risk , most will go with using simple ad-hoc rules or rules of thumb to take (average-outcomes) type of decision rules ,which in language of statistics we call it ranking percentiles , then they form based of these rankings classification their long and short bets , and that happens for all the asset classes by the way even options (of course quoted and liquid ones ) , that is about it , I can't give clearer answer than that , lastly look at how big 5 banks in the world invest their internal surplus funds , mostly will be found with insurance companies under very specific hedged type of instruments basically it is all about hedging if you want to your capital but if you would like to grow it , you have to consider , private markets as well , which are not quoted on red-tapes screen all the time , good luck hedging everyone
He uses Steam as a stock example when it's not even publicly traded. It wouldn't be listed as Steam either, but listed as Valve because that's the company who owns it.
Buffett's bet was with ONE hedge fund, not a "hand selected group of hedge funds". That he won the bet doesn't mean that no hedge fund outperformed the market. Further, the bet ran from 1/1/09 to 31/12/17. On the start date, US indexes were almost at the very bottom of the GFC fall, a situation which greatly assisted Buffett's side of the bet. If, in contrast, the 10 years had run from 1/1/99 to 31/12/08, then an index fund would have had a negative return. And let's not even get started on other stock markets, which don't all perform like the irrepressible US stock market, or that "hedge funds" includes companies which invest in other market sectors as well.
Hedge funds don't really hedge nowadays tho and you usually can't get your money out of one easily Also, dollar cost averaging underperforms when compared to just investing everything at once the moment you get the money
If you have all the money at the time, sure. But I see dollar cost averaging mentioned as something to do with your income, rather than collecting income for a period of time and then waiting to figure out the right time to put it all in.
I'm in wealth management and the reason the wealth use hedge funds is for several reasons. The thumbnail for this video is pure ignorance. Hedge funds can be absolute return vehicles, particularly if the goal of the fund is to have a very low correlation to capital markets. Hedge funds can hedge. Considering most ETF and mutual fund exposure is unhedged, it's purely directional. Market up, you're happy and the opposite for down markets. Hedge funds are less liquid affording the fund to make longer term, high conviction investments that more traditional funds cannot make due to constantly having to provide liquidity. The risk adjusted returns for most hedge funds are better than long only managers. I can go on, but the title of this video is beyond ignorant.
CAN hedge. Most use a lot of leverage. And absolute return funds are often more corelated than anyone realizes. Like how in 2020 merger arb went insane with a bunch of canceled deals.
Better than managed longs but not better than unmanaged indexes. Different than unmanaged indexes? Yes probably under the right market conditions. The manager who lost the Buffet bet kind of set himself up for a loss with the ten year timeline, but one more market downturn and he would've gotten a mill off of Warren. It's like saying Bonds are a terrible investment. Cool, sure, but 1984 called and they can't hear you while they Scrooge McDuck their bond yields. Investment advice is highly relative to recency bias.
hedge funds are dying out, most people who i know let their money be managed are upset with their returns or even losses (in a fricking bull market) publicly traded funds like ARK are going to be more common and their performance against Index is going to be the great filter for funds
Don't indexes choose the highest valued firms in thier respective fields? If so, isn't it impossible to beat them, when they are the highest by default?
@@bill_the_butcher you realize that shows my argument, right? How the indexes are organized, given enough time, and nothing else, they will always win, since they drop the thier losing stocks, and replace them for better prospects
Well, to my knowledge, they are the highest, but that also means they may miss out the growing company that may grows 100x times before going into the index. So they reflect average market return, but can be beaten. Example? Warren Buffet, Peter Lynch.
Most hedge funds do not hedge. Your mention of uncorrelated assets and mitigating portfolio volatility is good though. Jim Simons performance has been amazing.
"Does that make bonds a bad investment?" Yes, yes they are. Most of the time anyway. Perhaps if there weren't trillions of dollars in retirement accounts that are effectively forced to invest in bonds the yields would be better for the rest of us, but we don't live in the what if world.
bonds underperform against inflation, but overperform against bank accounts. if you want a safe and liquid place to store cash then bonds are a good idea
GameStop sell physical games in brick and mortar stores in 2022. Not even the most pessimistic hedge fund would bother hedge against the risk of game developers not releasing directly free to play download and pay to play or avoid grind, even on virtual platforms. GME is dead.
This video demonstrates a lack of understanding how markets work. When you invest in the general market you take the general market risk. A hedge fund takes a lot less risk because of their hedges. What matters is risk adjusted returns not just absolute returns. If you invested $1m in a lottery ticket and won $100m it was a horrible investment because your risk adjusted returns are not even close to a T bill.
The problem is most are run by "traders" that have very little market trading experience. They seem 100% fixated on the company set up..not on the trading method. Like everything there are out-standng ones and the rest.
You missed the part where you can become an investment advisor (pass the series 65 or get your CFP designation). That will also give you the ability to invest where only accredited investors can.
One nitpick: investing in stock options is not the same as gambling. The reason for this lies in one key feature of stock options: it is possible to be directionally wrong about the stock price, and still make money. I've done this more than once in the last year, where I bet on a stock decreasing or increasing in value, was wrong about that assessment, but still made money due to the magic of time decay. When you equate options to gambling, that tells me you don't understand options, or gambling.
@@samsonsoturian6013 I'm still a beginner, and will only have been trading options for 1 year come this February. I stick to the old two standbys of cash secured puts and covered calls. I still need to gain experience, and learn a lot, before I try iron condors and poor man's covered calls, which are strategies I still don't 100% understand. Getting there and learning, though.
Trying to beat the market will be a foolish thing as it requires one to predict the future which clearly isn't possible as a time machine doesn't exist as of now. So the best strategy is to always shadow the markets through which you can earn 30-40% returns on your investment. If this much returns isn't happy for you, then u r definitely being greedy and will have to do risky and bolder trades which may or may not work as you planned. So just flowing/shadowing the markets will always be the best strategy, especially for retailers who doesn't have deep knowledge and information about the markets, companies and industries 😎😎😎
@@uberboiz Options selling. If u can be happy and humble enough to earn a return of just 1% return on ur investment every week, then u can earn 3-4% returns every month, annually it comes to a nice 35-48% returns on investment 😎😎😎
@@uberboiz also if you ever plan on trading Options, do Options selling only as Options buying is a low probability strategy and in the long run Options sellers will always be profitable. Also an Option buyer must get the trend direction right if not he/she will lose the entire premium paid. But an Options seller can remain profitable even if the trend is going against his direction. It's called Delta neutral or Market neutral strategies. Example Iron Condor(my all time favourite) and Iron Butterfly. Do deep research on Options selling, esp Credit spreads strategies only, and never Debit strategies 😎😎😎
@@uberboiz also do Options selling in Index options only as in Stock options the liquidity is poor, it has assignment risks and stocks can Gap up or down overnight due to news or corporate actions events. Stocks options selling is best left to the Smart money. Retailers are definitely better off doing Options selling in Indices only 😎😎😎
It’s a “hedge” fund. Let’s say you own $100M of Facebook stock due to an acquisition and that stock is tied up. You would go to a hedge fund so that they can create a “hedge” against your exposure to Facebook. A hedge fund is not a wealth creation vehicle, it is a wealth protection vehicle. The clue is in the name.
Your example isn't hedging. Hedging is protecting your investment. If you were hedging you would long both steam and their competition, or short steam at the same time if the market was weak
Uhh... regarding hedging the market risk, cant you just hold cash or deposit your money on the bank instead? protect you from the fees and the year of underperformance
Successful investors are dependent on the action or steps they take to achieve it. Show me a man who doesn't have an investment and I will tell you how soon he'll go broke. Investment is building a safe haven for the future: with the right choices of investment that has minimum risk and with an Expert guidance, profit and interest should be guaranteed.
Starting early is simply the best way of getting ahead to build wealth , investing remains a priority . I learnt from my last year's experience , I am able to build a suitable life because I invested early ahead this time .
Fascinating! Hello! While I'm relatively new to the world of investing, I've heard that the present moment offers a great opportunity to make purchases. I have some funds in my bank account that are just idly sitting there, and I'm eager to put them to work, especially considering the current high inflation rates. Do you have any information about this coach who provides you with support? I'm interested in conducting some research to learn more about them.
I appreciate you sharing this. When I looked up the woman you named and read through her credentials, it was obvious that she was a complete professional. I just need her to respond to the message I wrote her. @benjaminbruce-co2ow
By definition hedge fund return shouldn't matter. Because you're literally "HEDGING" against the market. You're literally paying to balance your wealth.
I think I missed the "answer" part of your answer. The reality is that rich people are just as stupid as poor people, want something for nothing and hedge funds had a great sales pitch. Now private investments serve the same role of siphoning money away to fund managers, not coincidentally having the same ridiculous fee structure. The undisclosed fact of that industry is that the smart fund managers put their wealth is in passive indexed investments, while peddling their crap to rich folks that can afford it, so ... no skin off our noses, I guess...
@@PeterDeMarco I did, in fact I don't need the video to know that hedge funds are correlated assets (high beta) despite what the video said that they are bought for the very reason they are supposed to have zero beta.
@@revcrussell zero beta isn't even close to the purpose of a hedge fund, and you can't measure it against the market, you can only measure the value of the hedge against assets that aren't included in the fund. That's the whole gd point.
CMV the accredited investor laws did alkost nothing to protect the citizens while simultaneously barring them from the MOST profitable forms of investment (Seed funding, access private to funds, etc).
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I've audited hedge funds for a living and while I don't disagree with what you said, the single biggest reason I saw wealthy individuals invest in hedge funds was to protect their wealth from lawsuits and creditors. A massive amount of the investors were actually irrevocable trusts. They care far more about hiding their money from lawsuits than the diversification of their returns.
This comment was more useful than you boring my ears with filler words to make one sentence answer into a 11 minutes long video. Had to resort to comments as lost focus on subject
@@jmerch8029 This comment isn’t accurate though. Trust and corporate services industry is generally what helps rich folk hide their money trails. The video is an accurate description of the fundamentals of hedge funds, but yeah there are hybrid funds that are involved in various financial aspects.
@@jmerch8029 yet you still don't know what it is, how it works, how it is structured by hedge funds, and what it investment classes it compares to. You sound like the student who skims a summary, thinks he's smart, then fails the exam and wonder why...
@Seany uh, you clearly don't understand investing. Buying SQQQ is one of the stupidest things you can do, even if you want to hedge market risk. If you watched the video and paid attention, to the part where hedge funds short individual underperforming companies in a given sector, and go long overperforming companies in the same sector, and you did some research on statistics, you might be able to understand this strategy has far superior returns than the SQQQ (which will always lose historically given enough time).
@Seany You can't even write in English correctly let alone trade lol. I'm not even sure if you can read the rest of my sentences...
TLDR: A hedge fund is supposed to “hedge” against market downside, not to outperform the market every year.
Exactly its in the name.
Hedge funds were to prevent you from losing ! Then Maddoff got payment for order flow adopted ! Things changed when they realized the regulators were not really paying attention !
Supposed to... But in all reality, Hedge Funds are really just there to provide an alternative investment vehicle to the market.
They were hedge fund WERE at Edison time now they are betting groups
That would be a classical hedge fund. Nowadays though a lot of "hedge" funds do attempt to outperform the market.
0:11
You're missing a lot of the beauty behind the story :)
Buffet and his adversary put up a million dollars in the form of treasury bonds, and that money would go to the _charity_ of the winner's choice after the 10 year bet.
The best part? Because of the financial crisis, those bonds outperformed BOTH the S&P and the hedge funds!
I don't get it. If the purpose of hedge funds is to decrease risks, then it's expected that they make less money, so why would people who know about the market bet on something that all parties expect to be true? Are there hedge funds that promise big returns, contrary to what this video says?
@@DF-ss5ep Hedge funds USED TO decrease risks. Now it's just another way for investing, promising above average returns. If hedge funds were only to 'decrease risks' there would not be tough requirements for investors.
@@DF-ss5ep . There is a myriad of hedge funds doing completely different things that the average joe will never understand. The Medallion fund, mentioned in the video, uses math and they are a high frequency trading fund - they are a cancer in my opinion. Others, like Buffett, use fundamentals and buy undervalued and often distressed companies. There is an entire universe of hedge funds between those two.
It's also a status thing... when I was in business school, I had a professor that formerly worked in the industry explain that the huge fees clients had to pay and net worth requirements they had to meet were a sort of badge of honor. They could brag on the golf course about which hedge fund(s) they were invested in.
And it raises the bar for returns, so a hedge fund with a 20% higher investment requirement will return a 20% higher payoff; at the huge amounts of money that they use that probably seems like a good return, better than market, unless you do the math.
I don't buy this at all. This is what people imagine rich people are like.
@hanako5ever that’s different than just putting you money in a fund solely for status which no one fucking does unless they are the biggest dunce of them all source: im one of these people
@@vitsadelhole I believe these funds have sth else to offer rather than just traditional investments. Like backdoor insiders information in various industries, exclusive access to investment deals that outsiders wont be able to get in (experimental technologies,etc), perks of getting close or having direct influence/ access to high ranking Politicians, etc.
@@hoangle2483 yall literally have no idea what you are talking about like at all and its comical
thank you so much I've been trying to understand this and get an unbiased answer regarding Hedge funds for years now, it makes complete sense now
Let’s get this comment to 1K likes !
This video didn't even scratch the surface as to what hedge funds do and how they differ from one another. I work in private markets (alternative investments) and there are so many types of hedge funds that even I don't understand all of them.
Warren Buffett wins a $1,000,000: The most valuable thing to Warren Buffett was that he was right, he could care less about the bet money. Because he made WAY more money living his bet premise than winning the bet.
couldn't*
They didn't mention in the video the bet was to donate 1M to a charity of the winner chosing...
None was to pocket the money it was for charity.
Yeah if that were the case the world would be better fed and the price of bricks would remain stable ! Buffet and Gates own everything via cascade investments the financial arm of the gates trust the investment arm of the gates foundation ! They have never directly spent money on charity ! They invest in things that then invest in projects ! Not sure If a single brick is sold into North America that is not produced by the four brick companies cascade owns ! The keys to the kingdom are tucked away in a little shell company that is larger than the island it sits on !
@@npcwill283 I know that's b.s., my wife was at the ceremony and worked at the non profit Warren donated the $1mil to. He and his daughter Suzy donate a s&+$load of money locally and his son Fred donated the money for the cancer research center I drive the kids to school past every day. The Buffets support a lot of causes, especially here in Omaha. So go f(&_ off with your conspiracy theory nonsense.
@@PeterDeMarco Never said he never gave any charity away ! I said that whole super friends publicity shit was a scam that money was pooled to a super fund that went out and inserted itself in so many projects ! That after giving half of their wealth away both men quadrupled their net worth ? Could have just purchased the property the charity was operating on and assigned the trust to provide payroll for 100 years just as easily ! Look at what cascade owns what gates trust owns what Berkshire owns ! Come on man they account for 40% of all corrupt usury in the markets right now !
Hedge funds also have a really troubling component of luring in union and pension investors and seeing a video about that would be cool.
You mentioned Ray Dalio. His whole deal is making "all weather portfolios". When you look at his returns, he doesn't beat the index, but it does more or less match it in the long run. The difference is his portfolio doesn't have volatility. He doesn't get caught up in bubbles and busts.
And then the smartest thing to do would be perhaps say you implement his strategy with very low volatility and risk, then borrow on a margin or other kind of leverage, and you can leverage up to (I think 3;1 or 4;1) without losing the Sortino Ratio (ratio of downside risk adjusted returns) below an acceptable level (Don't ever go below 1, and ideally above 2 is good), it can be further improved by using the Russell 200 index rather than other for the stock market, because the largest companies have outperformed and are less likely to go bust (or if they do more likely to get help) and to invest in XLU Utilities rather than commodities, since they perform well in just about all market conditions, and are easier to scale (eg Buying leveraged ETF). Rebalance it quarterly, and it performs better than either the market or Ray Dalio.
In short, basically minimise downside risk by diversifying across asset classes that perform well in all kinds of market conditions, and then leverage it up, and watch yourself outperform the market.
@@sniper.93c14 . LTCM was great at leveraging. How did that turn out?
@@MrSupernova111 21% first year, 42% second year, 43% third year, then wiped out by the Asian Financial Crisis. Due to having 25 to 1 leverage, 2 or 3 to 1 is reasonable if your portfolio is well-balanced even 5 to 1 can help achieve higher rates of return without adding too much risk.
@@sniper.93c14 Sure. Good luck! LOL
Hmmmm.....that's a lot of money to pay for that.
The $1,000,000 bet was for charity; Buffet did not keep the money.
Ok bud👍🏻
Hedge funds, hedge their bets. It's almost like it's in the name.
Not true at all
Hedge funds are just funds with a loose structure. That gives the fund manager more choice. Plenty of hedgefunds are just normal institutional investors. For example: a lot of european countries have financial regulation that limits normal mutual funds or investment firms in how long they have to wait before selling more than €10 million dollars of shares. I know it sounds weird, but there is plenty of other stupid regulation on mutual funds and investment firms. Which is why most large funds register under a PLP structure. as a hedgefund with terms of service to what EU financial law codes as hedge funds.
Which is Also one of the reasons why hedge funds statistically underperform the market. Simply because mutual funds and other funds where the investment goal is to take lower risk and sacrifice return. As a result this brings than the average return of hedge funds who objective is to give no fucks about risk to achieve the highest returns possibly. So the average return of the big risk hedge funds is probably just a little bit higher than the index. Which by no means does not justify the risk they take in my opinion…
This channel is for ppl that don't understand that lol
No. Not all do.
"Having uncorrelated assets means that something will always be doing well while something else is doing poorly." - you have confused "uncorrelated" for "negatively correlated". When assets are uncorrelated, one could be flat, negative, positive, or anything in between while the other is doing well. One reason is because correlation cannot be measured at a spot, but over a number of samples.
Yep, the channel lost a little credibility on this one. As I watch more and more of these finance channels the more I realize the only thing they're good at is making youtube videos. I'm a finance nerd by trade and education.
Your description of risk is very simplistic. Every investor, including diversified mutual funds, are supposed to optimizing for return given a certain amount of risk. Risk in this case is actually a terrible term since most of the time this just means standard deviation and is farm more precise than most people realize.
Rich people don't usually invest to outperform the market, they want to preserve what they have so if hedge funds still grow enough to beat inflation, it's all fine to them.
That still doesn't make logical sense to me. If I were filthy rich, then I would simply buy (and hold) a basket of index ETFs.
Why not just buy bonds to preserve your wealth? Why overcomplicating it?
@@M.Evra91 the point is that bonds and traditional wealth preservation vehicles are shit nowadays. because inflation is so high and interest rates are low
@@Afroctopus there are bonds that pay interest based on inflation (T.I.P.S)
@@M.Evra91 Why is buying ETFs more complicated? With index ETFs you're better off anyway on the long haul.
Found a mistake in the video. Steam is a private company and can’t be bought on the stock market.
But hedge funds might be large enough to have access to private company stock.
@@jacobwiens659 private stocks/cooperate bonds has no affect on public market, because public companies compete with each other to gain market share.
Not really a "mistake," just stupid.
@@aluisiousyes a mistake can be stupid 🤦🏽♂️
@@bill_the_butcher well the hypothetical had a stupid mistake in it anyways.
Guys hedge funds are not supposed to match the s&p 500, they are okay with underperforming the s&p 500 because they are hedging out a lot of risk
Should, but they also don't because one word: Leverage.
LOL...so the SP goes up 9% and your hedge fund goes up 6% and we are happy?
Wait the SEC wants to protect the average investor from dubious financiers with high fees? Well, I guess they forgot the 401K industry. Or is that not high enough fees for barely giving any returns.
Even worse - public pensions. It's easier to take huge risks with OPM, especially when the losses can be covered by tax increases.
I work with recordkeepers in my career and every 401(k) I’ve seen has index funds as an option. I have seen one Safe harbor 401(k) that had an average cost to participant of 2.3%. We got it moved to better option. But a lot of times cost is up to the employer how much of plan costs they pay vs employees.
@@HUNT-DOG . 2.3% in fees for a 401k is criminal.
@@MrSupernova111 it’s not ideal. But fees are not the difference maker most of the time. And it’s still beneficial to the employee almost 100% of the time. Even if it’s not perfect plan design.
@@HUNT-DOG . For simplicity, if the average annual return of the account is 8% and the thieves take 2% then they are taking 25% of your returns. However, due to the compounding effect that 2% fee equates to a much higher loss than just 25%. Imagine you could have $1 million at retirement but the scoundrels took $250k+ for themselves leaving you with $750k.
As I said, its criminal.
Patrick Boyle really is great! I really like all of his videos, they sparked an interest in economics in me.
„People this rich are generally not stupid“
Theranos: let me introduce myself
if she managed to fool the public for many years, shes certainly not stupid
@@dxkaiyuan4177 he’s calling the investors stupid, not her
Love your vids and thanks for shouting out Patrick Boyle, I love his videos and sense of humor. Like you said, criminally underrated.
Finding good investments is hard.
Finding the best investors is impossible.
You always present helpful perspectives to explain topics that initially seem complicated. Your regular uploads also allow viewers to see the concepts repetitively and become more nimble financial thinkers. Thank you for your contribution to youtube.
Nah, that's what hedge funds are supposed to be, not what they are.
If you haven't watched Patrick Boyle videos then you are missing out on very crucial financial information and humour😅
Hedge funds are just a safe heaven for very cautious rich people
You can start this video at 4:52 and skip the long intro. Very informative but after 4:52.
Thank you for all the awesome content you are creating. This channel is a must watch and I'm learning a lot!
Yes, Patrick Boyle has very well made videos explaining complicated financial issues clearly.
Sounds like you're being sarcastic for some reason
Based on my research and based on my regression and monte carlo simulations on hedge fund, major indexes returns across the past decade, I can confidently say, hedge fund performance IS correlated to the market's performance.
I hope you don't seriously use regressions and simulations to invest your money. Assets are correlated until they aren't. Look up LTCM and see how it turned out for them.
@@MrSupernova111 Do you know how statistics work? I suggest taking an introduction to statistics course. Perhaps a beginner one might match your intellect.
@@zr60 . Let me get this straight. You're going to predict stock prices which are driven by cash flows (earnings) and economic factors using a monte carlo simulation you cooked up at home. Sure, keep dreaming son. Just because you throw in some variables and get some output it doesn't make it correct you fool.
@@MrSupernova111 Think. Think. Think about why I'm using a monte carlo simulation. I'm looking at whether hedge fund returns are correlated with market returns. How is that predicting cash flows and economic factors using monte carlo simulation? Please, learn to think.
@@MrSupernova111 You really aren't smart are you?
I heard somewhere that a number of modern hedge funds have moved into investing in areas that expose them to Market risk, and so are not as safe an investment as they used to be, is that true?
Yep. It's also true that many get their hedges wrong. Ex: Bet against bitcoin, bet on gold rallying - back in 2014. Ouch. Bet against tech, bet on oil - now they're at a quadruple ouch. I have seen news blurbs where some have negative 70-80% years and liquidate immediately after, by getting their thesis and all their hedges backwards.
Long only means you're right 90% of the time, because the market rises 90% of the time. Good enough for me!
It depends on the strategy. For example, running a lot of models to build a portfolio where there’s a 99% probability of a 5% return. Then to magnify that return, borrow to leverage up (say 10x) so a 99% probability that becomes a 50% return.
Of course, should that other 1% negative outcome happen (or a pretty good chance of it and lenders get worried) then RIP hedge fund.
@@quantyquant3884 Jesus, this sounds exactly like what the WSB degens would do. Only differences are that these guys using other ppl money, and they get paid doing it.
@@quantyquant3884 the issue is that with such huge amounts of money you cannot leverage and you become illiquid, meaning that you will not be able to drop your portfolio fast enough before you move the market with your sell orders.... nobody will give you billion for your 100mil
Concentration builds wealth - spreading preserves it.
The great majority of hedge funds figure to dramatically underperform reasonable bench marks like the SPY, even adjusted for risk... and this is exactly what they do.
The primary reason is the large fees they charge, thlugh there are other reasons as well.
A notable exception is the legendary Medallion Fund from Renaissance Technologies which is capped at ten billion and closer to outsiders.
Dollar cost averaging has really nothing to do with variance optimization
An extra million bucks turned his low range Wednesday income into a moderate Wednesday.
The point of "managed" investments is not to make money for those investing. It is designed to generate never ending fees. That includes 401k, hedge funds, and special investment services.
You and Ole Paddy Boyle are top tier info. I actually RE-watch your vids to get as much out of them as I can.
Rich people invest in hedge funds for the same reason rich people invested with Bernie Madoff. A good sales spiel
Investing still remains a priority.
The trades market have been programmed for the smart to get even wealthier, I’m 33 and have over $3mill in net-worth. Thanks to investing lifestyle
It’s almost the start of a new year and the non - investing public should really pay attention to the markets cause there’s no better time to invest than this period, I’m speaking from experience. I just dropped some cash in crypto too
Kudos mate 👍 Leaving it in investments rather than my bank accounts is one decision I’ll never regret, over the years I’ve accumulated tons of wealth from proper investments in Bitcoin, non-fungible tokens (NFTs) and stocks. Currently I plan on maximizing my gains and growing my portfolio even bigger ❤️. Let’s not forget that the biggest payouts in the markets don’t come from great performances but rather it’s great promotions. Stay invested, diversification for streams of incomes is very important
I’ll take investments in stocks any day they’re very remunerative….Only problem I’m facing is earning off it, my portfolio’s been a mess I barely even make gains. How do you go about your earnings
All weather portfolio’s are for people who can’t handle market volatility. Their returns are smaller because of it
😂 The markets can be inundating at first but that doesn’t mean it’s not profits worthy, till today I’m still mind blown with my profits outcome investing with trade pro Noud Mikan. His system and ingeniousness gets me an average rate of 13% ROIs annually and he charges me just 1% on commission, smart and credible trader ❤️
Good video! Most journalists don't understand the difference between returns and risk-adjusted returns, and the role of correlations and market betas and alphas. Good hedge funds indeed have a role in a diversified portfolio, even though their total return may lag the S&P500. Buffett understands all this but he uses these stupid publicity stunt bets for mentions of financially illiterate journalists.
The comparison to bonds was spot on. Its not always about the highest expected return. As we say in finance, there is no arbitrage (free lunch) in finance.
Exactly why Buffet prefers that, he’s more of a private equity/ business investor than portfolios, hence why he’s disagrees with having gold in your portfolio...which is clearly to balance the portfolio.
I keep loosing in real trade but win in Demo.
Should I give up on Trade?
What should I do?
How may I do better?
What I'm I doing incorrectly?
I HAVE INCURRED SO MUCH LOSSES TO TRADE ON MY OWN,I TRADE WELL ON DEMO BUT I THINK THE REAL MARKET IS MANIPULATED.
having a mentor is also very important when it comes to Trade, with out that, it can be very frustrating.
you must have these things in mind
1. Have a long term mindset.
2. Be willing to take *risk*.
3. Be careful, if you're not spending to earn back, then stop spending.
4. Never claim to know - Ask questions and it's best you work with an assistant.
The wisest thought that is in everyone's minds today is to invest in different income flows that do not depend on the government, especially with the current economic crisis around the world. This is still a good time to invest in gold, silver and digital currencies (BTC, ETH. stock,silver and gold)
When it comes to Trade, I can confidently say that bitcoin is the best option. But most people think it's all about buying and leaving it to rise but It takes a lot more you need to trade it to earn daily.
Having to go into savings for surprise expenses like home repairs, illness and so one seems like a much more common and pressing event for ordinary people. If you are a rich person there will probably be some company claiming to be the next Facebook every week and missing out seems like nothing more than a slight inconvenience. But needing to sell your house during a housing crash or having to postpone retirement until the market recovers sound much more impactful.
As a rich person you have enough money to whether a storm. You win so e, you loose some, but it doesn’t really effect your lifestyle. What’s I think would be important is longterm stability.
So maybe the reason rich people invest in hedge funds isn’t because they value stability higher than others, but because they are the only ones who can. Beyond that customer service and exclusivity are probably a big factor.
Do not invest if you're unstable. You're not a 4chan user or a Reddit user, so don't act like one.
They have their own issues. They try to protect their money from lawsuits and taxes. Hedge funds are basically all the financial and mathematical brainpower to protect and grow wealth.
They need to update their definition of "accredited investor" because they basically just described half the (employed) population of the Bay Area. Buy a house and wait a few years, and you probably have a net worth over 1 million. Get a software engineering job at one of the FANG companies and 200K is pretty common.
But I gotta tell you, most of these people are not "sophisticated investors"
100% also everyone in the bay area is a private hedge fund manager of their own robinhood portfolio
1 million net worth expect primary residence.
To be honest though it's a bit dumb that "unsophisticated" investors can buy options and crypto but can't invest in hedge funds.
It feels like of the three, hedge funds are the least risky.
@@IamGrimalkin It's exactly why they are NOT risky, because they are regulated. NFT's and crypto would also be a lot less risky if it was regulated. Regulation simply means laws to prevent fraud. The sad thing is that humans will use any loophole to cheat another, thus why most crypto and NFT's today are scams. We do this to ourselves. We need to be regulated because we can't control our base impulses to lie, cheat, and steal.
@@MrMinecraftGamer456 > 1 million net worth expect primary residence.
Yeah, I missed that caveat at first. But, nonetheless, buy a house in the bay area then leverage it to purchase cheaper rentals in another state. Or sell it an and leave the state.
I know plenty who have done either or both.
Here in the Bay Area, you can easily spend $1k for a car service that might cost a couple of hundred elsewhere. So, people get paid more to adjust. A $100K salary really doesn't mean much here .. that's actually the median income.
They key is that 1 million dollars is not a high bar nowadays. Money breeds money and compounding works really quickly if you have a large enough amount for seed capital. A base $100K salary might come with a 20K annual bonus - that lump sum can be socked away into an investment and then compound very quickly.
I am seeking some investment guidance. It seems like I am never able to identify trends, options always go against me, and I can't utilize scanners efficiently. I am looking for a simple reproducible passive income strategy that supplements my income and eventually replace my wage income.
Get a coach Lee, that's the most ideal way to jump into the market these days.
@@stricklandpilman2123 Pilman is right, only a reliable coach can guaranty you stability in the financial market.
@@stricklandpilman2123 But how can one get a reliable coach, considering the heavy presence of scams in our social media space today?
@@leemarty2765 It's a great concern for us all, however names like ''Faith Sophia Heeg'' is exceptional
@@stricklandpilman2123 I just checked the name out, thanks hope she replies my mail.
Your channel is so important in this world
Thanks! Means a lot
@@HowMoneyWorks shared your channel with a friend looking to get into the markets. You help us all understand so much
It depends on the hedge fund. Some beat the market
Very well laid out and explained. Uncorrelated assets are the key
Thanks a lot. I dont know the meaning of hedge exactly because English is not my first language. But soon I'll know surely. Keep them coming!
9:33 I don't think hedge funds are good for accessing money quickly either. Often they restrict when money can be withdrawn so in this respect they're even worse than, say, index funds.
And a good example recently is Citadel (who are crooked to the core anyways) which has recently posted that their investors can only withdraw up to 6% of their initial deposit per year. If you want to take out all your money you are going to have to pay a fat fee.
Perhaps next, a video about Market Makers AKA liquidity providers?
I heard that while 99% of hedge funds don't beat the market, the majority of hedge fund money are in the 1% that do.
Trade bullish stocks. Do not hold for long! Wh thinks otherwise?
I agree with you. Uranium stocks especially (DYOR) do your own research through a professional. *Sandra* *Yvonne* *Webster* is good you can look her up.
@@NathanLewis7871 Wow! I know Sandra. Met her sometime ago here in North Carolina during a fundraiser. Great speaker, full of humor and rhetorics too…”Mrs buy the dip “. Lol
how are mutual funds different than hedge funds?
My portfolio has good companies, however was red all through last year. My first year of investing and have been down 35% in the March/April sell off, and now down 17% in the last sell off. I work hard for my money, so investing is making me a nervous sad reck. I don't know if l should sell everything and just sit and wait.
Building a good investment portfolio is more complex so l would recommend you seek professional support/guidance this way you can get strategies designed to address your unique long-term goals and financial dreams.
I've been trying to hire a professional afterall it's what wealthy people really do, they hire more experienced persons to do the job but l can't find anyone l can trust.
@@stjepandujmovicjp1495 Thanks for the recommendation,I'll ensure to contact her ASAP
Frugality is an attractive quality to the majority of the population. Being frugal is about putting your dollars towards the things you care about and not overspending on the things that don't matter.
@@stjepandujmovicjp1495 Wow l know Alexia Young. Her platform maintains a unique perspective and is very transparent with their investors regardless of whether or not she outperforms l will always stay invested as her methods alone with keeping investors in touch with their strategies and outlooks are something that so few managers are capable of and they should follow suit.
This is a terrible video. Almost everything he says is wrong:
- The point about uncorrelated risk is partially true as hedge funds do have access to more asset classes, but that's not why people choose hedge funds
- The whole market risk section is fundamental misunderstanding of risk management, modern portfolio theory, and just how finance works in general. You can't get rid of market risk and create returns out of nothing, you have to live somewhere on the efficiency frontier and hedging is just a tool of exchanging risk for returns
- Dollar cost averaging is not a magical tool to make more money, and it's certainly not why you want uncorrelated asset classes. Again, this is a fundamental misunderstanding of the theory, dollar cost averaging is much worse than just investing all your money at once on average, you're moving towards the lower-return side of the efficiency curve. Uncorrelated assets decrease risk by the simple fact that they're uncorrelated, it's a basic result derived from statistics
- Billionaires mostly don't handle their own investments, it's mostly through high net-worth portions of banks with input from the individual
- Rich people don't really have cash on hand; if they need money they lend it from a bank with their assets as collateral or liquidate the liquid portions of their portfolio. No sane person just has billions in a bank account, it's wasted money.
- Many funds actually have lock-out periods where you *can't* withdraw your money without penalties, so actually depending on the fund it may be the more illiquid portion of a portfolio
Really, the correct answer is that rich people invest just like the rest of the population. Some people get scammed by salespeople working on a commission into buying shitty products, the same way some rich people get scammed into buying shitty hedge funds that really just shadow an index anyways.
The author clearly demonstrates a fundamental misunderstanding of investment theory basics. He spends an entire video explaining different ways of moving up and down the efficiency curve, and then claims that this is why hedge funds exist, which is confusing unrelated things. Hedge funds exist essentially because people hire them to make money on their behalf. A guy has the contacts from a long career in banking, gets together with a few quants and draw up a business plan, and tries to get enough money to make the plan work. That's basically it.
The only other video I've come across from this channel is the one on "how banking works" which is also full of misinformation and demonstrates a complete lack of research into the financial system. My impression is that the author primarily reads a few comments on reddit and then extrapolates from there based on no real information; he would be well-served by actually sitting down with industry professionals and asking them basic questions on how everything works.
Sir, what you've described is a private equity fund. _[almost]_ Everything said in the video about hedge funds is correct.
@@rightwingsafetysquad9872 Not the Steam-Buy/GME short. Those are on the same side of the bet. If Steam wins, so does your short position. Same if there’s a “broad market downturn”. I’ve spent all morning turning it over in my noggin, and it only makes sense of our boy is mistaken.
@@eriknephrongfr8847 Valve and GME are in the same sector. You are confident GME is going to decline, so you short or buy puts. You want to stay sector neutral, so you hedge that position buy buying Valve, isolating you from broad market moves. The market neutrality is what defines a hedge fund. This is a more advanced version of buying calls in a position you've shorted.
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Man! 1 minute ad in 11 minute video 😡
Skip to 8:00
He answers the question here succinctly
nice shoutout for patrick, found him during the initial evergrande news.
first thing to judge a hedge fund on a pure performance metric , assuming you are not looking in to protecting your funds from lawsuits and creditors as has been alluded to earlier within the thread , then simply you have to preserve your capital like a bank , then and only then you will be able to grow your initial capital , if one looks at the hedge fund performance based firstly and before everything else on maximum DD metric , then you will see most of them fail on that regard i.e. preserving your capital against extreme shocks , and it happens that those with those best maximum DD metric happens to be short-long vol funds , then short-long equity and bond funds including credit , that is the whole story I believe , lastly as confirmed by research in behavioral sciences when people(including HF managers)are asked to take decisions under risk , most will go with using simple ad-hoc rules or rules of thumb to take (average-outcomes) type of decision rules ,which in language of statistics we call it ranking percentiles , then they form based of these rankings classification their long and short bets , and that happens for all the asset classes by the way even options (of course quoted and liquid ones ) , that is about it , I can't give clearer answer than that , lastly look at how big 5 banks in the world invest their internal surplus funds , mostly will be found with insurance companies under very specific hedged type of instruments basically it is all about hedging if you want to your capital but if you would like to grow it , you have to consider , private markets as well , which are not quoted on red-tapes screen all the time , good luck hedging everyone
Thanks so much for this. I have an Economics degree and yet never knew this.
He uses Steam as a stock example when it's not even publicly traded. It wouldn't be listed as Steam either, but listed as Valve because that's the company who owns it.
I noticed that too lol. As far as I'm aware Gabe holds 100% ownership of valve and has made it clear he never intends to go public.
Nice catch dude
Buffett's bet was with ONE hedge fund, not a "hand selected group of hedge funds". That he won the bet doesn't mean that no hedge fund outperformed the market. Further, the bet ran from 1/1/09 to 31/12/17. On the start date, US indexes were almost at the very bottom of the GFC fall, a situation which greatly assisted Buffett's side of the bet. If, in contrast, the 10 years had run from 1/1/99 to 31/12/08, then an index fund would have had a negative return. And let's not even get started on other stock markets, which don't all perform like the irrepressible US stock market, or that "hedge funds" includes companies which invest in other market sectors as well.
wrong, the bet was with a fund of funds that included lots of other funds... so his bet is even more impressive. you are peddling nonsense
I love he explained index investing in 10 seconds .
Hedge funds don't really hedge nowadays tho and you usually can't get your money out of one easily
Also, dollar cost averaging underperforms when compared to just investing everything at once the moment you get the money
If you have all the money at the time, sure. But I see dollar cost averaging mentioned as something to do with your income, rather than collecting income for a period of time and then waiting to figure out the right time to put it all in.
I'm in wealth management and the reason the wealth use hedge funds is for several reasons. The thumbnail for this video is pure ignorance. Hedge funds can be absolute return vehicles, particularly if the goal of the fund is to have a very low correlation to capital markets. Hedge funds can hedge. Considering most ETF and mutual fund exposure is unhedged, it's purely directional. Market up, you're happy and the opposite for down markets. Hedge funds are less liquid affording the fund to make longer term, high conviction investments that more traditional funds cannot make due to constantly having to provide liquidity. The risk adjusted returns for most hedge funds are better than long only managers.
I can go on, but the title of this video is beyond ignorant.
CAN hedge. Most use a lot of leverage. And absolute return funds are often more corelated than anyone realizes. Like how in 2020 merger arb went insane with a bunch of canceled deals.
Better than managed longs but not better than unmanaged indexes. Different than unmanaged indexes? Yes probably under the right market conditions. The manager who lost the Buffet bet kind of set himself up for a loss with the ten year timeline, but one more market downturn and he would've gotten a mill off of Warren.
It's like saying Bonds are a terrible investment. Cool, sure, but 1984 called and they can't hear you while they Scrooge McDuck their bond yields. Investment advice is highly relative to recency bias.
You also hedge against upside. 😅
The proceeds of the Buffett bet went to charity. It was always ear marked for charity.
hedge funds are dying out, most people who i know let their money be managed are upset with their returns or even losses (in a fricking bull market)
publicly traded funds like ARK are going to be more common and their performance against Index is going to be the great filter for funds
With the right discipline and the right determination, anyone can be successful in anything.
I love the ticker scrolling a bunch of crypto currencies to indicate "diversification" 6:12 lol
Don't indexes choose the highest valued firms in thier respective fields? If so, isn't it impossible to beat them, when they are the highest by default?
@@bill_the_butcher you realize that shows my argument, right?
How the indexes are organized, given enough time, and nothing else, they will always win, since they drop the thier losing stocks, and replace them for better prospects
@@bill_the_butcher so, me clarifying, based on the video, is shifting the goalpost?
Well, to my knowledge, they are the highest, but that also means they may miss out the growing company that may grows 100x times before going into the index. So they reflect average market return, but can be beaten. Example? Warren Buffet, Peter Lynch.
Happy New Year
It's ridiculous. Why would anyone want to fund a hedge?
So this comment section is literally 80% scams, nice.
Most hedge funds do not hedge. Your mention of uncorrelated assets and mitigating portfolio volatility is good though. Jim Simons performance has been amazing.
"Does that make bonds a bad investment?"
Yes, yes they are. Most of the time anyway. Perhaps if there weren't trillions of dollars in retirement accounts that are effectively forced to invest in bonds the yields would be better for the rest of us, but we don't live in the what if world.
bonds underperform against inflation, but overperform against bank accounts. if you want a safe and liquid place to store cash then bonds are a good idea
@@swank8508 That's fine, but then you're not using them as an investment, you're using them as a savings vehicle.
Safety has it's own price
@@rightwingsafetysquad9872 mostly agree with what you said but looking for a better return on virtually risk free money makes it an investment.
@@swank8508 bonds aren't safe. COVID hammered stocks and bonds in 2020.
GameStop sell physical games in brick and mortar stores in 2022. Not even the most pessimistic hedge fund would bother hedge against the risk of game developers not releasing directly free to play download and pay to play or avoid grind, even on virtual platforms. GME is dead.
This video demonstrates a lack of understanding how markets work. When you invest in the general market you take the general market risk. A hedge fund takes a lot less risk because of their hedges. What matters is risk adjusted returns not just absolute returns. If you invested $1m in a lottery ticket and won $100m it was a horrible investment because your risk adjusted returns are not even close to a T bill.
The problem is most are run by "traders" that have very little market trading experience.
They seem 100% fixated on the company set up..not on the trading method.
Like everything there are out-standng ones and the rest.
To sum it up, diversify.
You missed the part where you can become an investment advisor (pass the series 65 or get your CFP designation). That will also give you the ability to invest where only accredited investors can.
So you pass the Series 65, put all of your $11,456.72 into Bridgewater, and then pay a $4mill fee at the end of the year. Got 'em!!!
@@PeterDeMarco If you did that, you have bigger problems than anyone on RUclips can help with.
thank you for this amazing video.
One nitpick: investing in stock options is not the same as gambling. The reason for this lies in one key feature of stock options: it is possible to be directionally wrong about the stock price, and still make money. I've done this more than once in the last year, where I bet on a stock decreasing or increasing in value, was wrong about that assessment, but still made money due to the magic of time decay. When you equate options to gambling, that tells me you don't understand options, or gambling.
There are also zero risk and delta neutral option spreads.
@@samsonsoturian6013 I'm still a beginner, and will only have been trading options for 1 year come this February. I stick to the old two standbys of cash secured puts and covered calls. I still need to gain experience, and learn a lot, before I try iron condors and poor man's covered calls, which are strategies I still don't 100% understand. Getting there and learning, though.
Trying to beat the market will be a foolish thing as it requires one to predict the future which clearly isn't possible as a time machine doesn't exist as of now. So the best strategy is to always shadow the markets through which you can earn 30-40% returns on your investment. If this much returns isn't happy for you, then u r definitely being greedy and will have to do risky and bolder trades which may or may not work as you planned. So just flowing/shadowing the markets will always be the best strategy, especially for retailers who doesn't have deep knowledge and information about the markets, companies and industries 😎😎😎
Mate, what kind of markets return 30%-40% per annum (let alone constantly year-on-year)?
@@uberboiz Options selling. If u can be happy and humble enough to earn a return of just 1% return on ur investment every week, then u can earn 3-4% returns every month, annually it comes to a nice 35-48% returns on investment 😎😎😎
@@uberboiz also if you ever plan on trading Options, do Options selling only as Options buying is a low probability strategy and in the long run Options sellers will always be profitable. Also an Option buyer must get the trend direction right if not he/she will lose the entire premium paid. But an Options seller can remain profitable even if the trend is going against his direction. It's called Delta neutral or Market neutral strategies. Example Iron Condor(my all time favourite) and Iron Butterfly. Do deep research on Options selling, esp Credit spreads strategies only, and never Debit strategies 😎😎😎
@@uberboiz also do Options selling in Index options only as in Stock options the liquidity is poor, it has assignment risks and stocks can Gap up or down overnight due to news or corporate actions events. Stocks options selling is best left to the Smart money. Retailers are definitely better off doing Options selling in Indices only 😎😎😎
It’s a “hedge” fund. Let’s say you own $100M of Facebook stock due to an acquisition and that stock is tied up. You would go to a hedge fund so that they can create a “hedge” against your exposure to Facebook. A hedge fund is not a wealth creation vehicle, it is a wealth protection vehicle. The clue is in the name.
So it's kinda like betting on fb with the stocks you buy, but hedging with shorts on Facebook as well just in case?
@@Matt-fq6ly you can short in facebook and also to their competitors like twitter
There’s a few funds that do perform above market. Namely Citadel and Rentech have had above market returns.
The likelihood of identifying them in advance is almost zero. Why bet against those odds?
Didn't think I would see Patrick as a source xD
They make sure bets by shady practices not by guessing on some stock and hedging against the risk
Your example isn't hedging. Hedging is protecting your investment. If you were hedging you would long both steam and their competition, or short steam at the same time if the market was weak
Uhh... regarding hedging the market risk, cant you just hold cash or deposit your money on the bank instead? protect you from the fees and the year of underperformance
This crazy s&p performance has only been a recent phenomenon.
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@benjaminbruce-co2ow
By definition hedge fund return shouldn't matter. Because you're literally "HEDGING" against the market. You're literally paying to balance your wealth.
excapt valve isn't a public company. but, i guess, it doesn't matter for the sake of argument.
I quickly checked if steam was a public company, terrified.
I think I missed the "answer" part of your answer. The reality is that rich people are just as stupid as poor people, want something for nothing and hedge funds had a great sales pitch. Now private investments serve the same role of siphoning money away to fund managers, not coincidentally having the same ridiculous fee structure.
The undisclosed fact of that industry is that the smart fund managers put their wealth is in passive indexed investments, while peddling their crap to rich folks that can afford it, so ... no skin off our noses, I guess...
The question you are asking is "why doesn't the market outperform the market ?" And I think the answer to that is obvious.
Steam is not a company, valve is
And Kleenex is a brand, not a facial tissue.
But mutual funds are the downside of fees and no upside of hedge, correct?
If hedge funds did their job then the market crash during that 10-year time wouldn't have affected them. This was clearly not the case.
Depends on fund type. The giant funds are overwhelmingly macroeconomic funds lead by star investors. These are correlated to the market by definition.
It's like you didn't watch the video at all...
@@PeterDeMarco I did, in fact I don't need the video to know that hedge funds are correlated assets (high beta) despite what the video said that they are bought for the very reason they are supposed to have zero beta.
@@revcrussell zero beta isn't even close to the purpose of a hedge fund, and you can't measure it against the market, you can only measure the value of the hedge against assets that aren't included in the fund. That's the whole gd point.
@@PeterDeMarco Well if you watched the video, he makes the case that the point of a hedge fund is to have uncorrelated returns. That means low beta.
CMV the accredited investor laws did alkost nothing to protect the citizens while simultaneously barring them from the MOST profitable forms of investment (Seed funding, access private to funds, etc).