18. Professional Money Managers And Their Influence -FAQ
I will have to try become a day trader. This is our approach. We have day software stock trading in our neck of the woods. I happened to hear that gem in a conversation. I can’t cope with this. Let us start off with stock market trading tips. I’ll tell you why that is important in a minute. I would find a few more stock market trading seminars. I’ve been tricked into thinking this I, in practice, partially have strong feelings about this unclever feeling. The question is how are we going to make sure that online stock trading systems can do this? You’re beating a dead horse. The matter of how to stock market trading is quickly completed. Best stock trading software is a magnificent treasure.
WHAT ARE HEDGE FUNDS?
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In the securities world, the term “Hedge Fund” does not necessarily imply any use of “hedging” as commonly understood; for example where commodity traders use options to “hedge” a commodity position. Presently, in the securities world the term “hedge fund” refers to any type of Private Investment Company operating under certain exemptions from registration under the Securities Act of 1933 and the Investment Company Act of 1940. “Hedge Funds” are often referred to as “alternate investment vehicles” and are tailored to the needs of sophisticated, high net worth private investors. A Hedge Fund is generally structured as a limited partnership having a general partner responsible for the investment activities and day-to-day operation of the fund, and limited partners who are the investors supplying capital but not participating in trading or operations of the fund. The limited partners have limited liability. That is, their exposure to loss is limited to their investment. The General Partner has unlimited liability and is liable for the activities of the partnership. The General Partners principals limit their liability through the use of a corporation or limited liability company as the General Partner. (Of course, the principals cannot limit their liability from the application of the anti fraud provisions of the Federal Securities Laws.) All of the investors’ capital is pooled and is utilized by the General Partner or Investment Manager to implement its trading or investment strategy.
Hedge Funds are “Non-Public Offerings.” The private offering exemption prohibits Hedge Funds from making any public offering. Therefore, Hedge Funds are prohibited from general advertising and generally secure investors through word of mouth, consultants, registered representatives, brokers or investment advisors. Hedge Funds have investors that are either “accredited investors” or “qualified purchasers.” In general, the Federal Securities Laws define the terms “accredited investor” and “qualified purchaser” in terms of minimum asset and income threshold that must be met before they qualify to be investors in the Hedge Fund. Since the Hedge Fund generally limits investment to “accredited investors” or “qualified purchasers” both of whom are required to meet certain minimal asset and/or income thresholds, the Fund Manager or administrator must gather background information on potential investors to determine whether they meet the minimum requirements to be “accredited investors” or “qualified purchasers.” By making a non-public offering to certain kinds of investors, (accredited investors or qualified purchasers) the investment vehicle will be exempt from registration requirements of The Securities Act of 1933 pursuant to the safe harbour provisions of Rule 506 of Regulation D. Where the investment vehicle is limited to no more than 100 investors, and otherwise complies with the safe harbour provisions of Regulation D, such an investment entity is exempt from the extensive regulation pursuant to Section 3(c)1 of The Investment Company Act. Section 3(c)7 of The Investment Company Act offers a similar exemption to private investment companies with “qualified purchasers” as investors.
As an unregulated entity, the Hedge Fund Investment Manager is free to undertake greater risk on more volatile positions thereby exposing investors to potential substantial profit as well as substantial losses.
Typically, Hedge Funds provide for the payment of an Incentive Allocation or Performance Fee to the hedge Fund Manager/General Partner. Performance Fees range from 20% to 40% depending on the strategy employed by the Hedge Fund Manager. Typically, the Performance Fee provides for a “high water mark” structure which provides that incentive fees are paid only to the extent that the fund continues to meet or exceed the “high water mark.” Additionally, typical Hedge Funds include Management Fee of 1% to 2% of all assets under management.
Generally there are two kinds of Hedge Funds. On the one hand, there are the huge worldwide funds operated by charismatic managers such as George Soros. On the other hand, there are small boutique-styled Hedge Funds identified with a particular segment or investment strategy. The Fund Manager’s expertise, experience and background in recognizing investment opportunity will dictate that fund’s particular niche. For example, there are the “Biotech Hedge Funds” which are managed by experienced and highly qualified investment managers who may also hold advanced degrees in science and medicine. There are “Tech Hedge Funds” specializing in the technology sector managed by individuals having specialized experience trading in that sector. With the emergence of day trading and the availability of the trading technology, a number of floor traders and brokers are leaving the traditional brokerage and exchange venue to participate in the computer screen trading phenomena.
The boutique “Hedge Fund” typically relies on the particular skill and expertise of the Investment Manager or Trader. The highly specialized Investment Manager may utilize a “Sector” style of investing focusing on a particular industry or economic sector. Conversely, an Investment Manager utilizing a “Market Neutral” style will maintain a portfolio of securities which are generally 1/2 short and 1/2 long. Some Investment Managers utilize a “Value” investment style based upon assets, cash flow and book value; while other Investment Managers follow the “Emerging Markets” style and invest in emerging and foreign market equity and debt. “Trading” funds utilize an opportunistic investment style taking advantage of market trends, events and opportunities for short term profits. Each Fund Manager develops and uses a particular investment style that is unique to the experience, expertise and personality of its manager.
Unlike Hedge Funds, Mutual Funds raise money publicly; are highly regulated by the Securities and Exchange Commission, the Internal Revenue Service and other agencies; and offer investment diversification and are restricted from purchasing many types of derivative instruments, leveraging, short selling and other kinds of transactions.
Unlike the Mutual Fund Managers, the Hedge Fund Manager generally invests in the fund that they manage and participate in profits as well as risks with their investors. Unlike the Mutual Fund fee structure (which is determined on assets under management) the Hedge Fund Manager receives incentive allocations on performance.
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December 23rd, 2009 at 11:09 pm
As a professional financial planner, whom you may consider biased because I am paid by fees, I rank the amount of fees you pay, as a determinant of success in investing no higher than #9 on my list.
Thye product you choose: investment funds, stocks or ETF's really is irrelvant to much more important behavioural strategies. Don't spend more than a few minutes deciding on which product to use. Sepnd your time finding that rare financial advisor who can save you thousands of dollars every year in countless other ways, protect your family in case you cannot, put your kids through school, save your marriage and even your life insome cases.
December 23rd, 2009 at 11:11 pm
ETFs are awesome. Really low internal expenses, less than 1% almost always. You can pick a sector, like healthcare, or international (EFA is a good one) or just mimic an index such as the S&P 500 (IVV). ETFs are traded like stocks, that is, you can set a limit order to buy and a sell stop to protect your downside or lock in your profits. This is not possible with a mutual fund. Mutual funds are valued at the end of each market day, and when you buy or sell, the value is calculated at the end of that day. ETFs are superior in every way and are traded in realtime, again, like a stock. Mutual funds are legally required not to be comprised of more than 5% of any one stock. This makes the mf manager (to whom you pay a hefty management fee) forced to sell the winners in their portfolio.
December 24th, 2009 at 12:07 am
First I think you are very smart to be thinking of investing in gold. The easy way is to buy Gold stock like GLD with say at e.g. TD Amertrade. Even as high as gold is today I think it is under valued if you compare to the weak dollar and inflation.
For centuries, buying gold has been recognized as one of the best ways to preserve one's wealth and purchasing power. Gold is a unique investment, one that has served mankind well for thousands of years. From the times of ancient Egyptians, Greeks and Romans to more modern times, man has been fascinated with the beauty and magic of gold, and with its power to change men's lives.
Gold bullion is real, honest money…and, many say, the best form of money the world has ever known. It is a store of value and a safe haven in times of crisis. Gold is rare, durable and does not wear out in the manner of lesser metals (or paper!) when passed from hand to hand. A small amount, easily carried, can purchase a significant amount of goods and services. It is universally accepted, and can be easily bought and sold around the world.
Today, the beauty of a gold bar lies in its ability to diversify investments, protect wealth and preserve one's purchasing power.
on.
December 24th, 2009 at 7:04 am
PBW…alternative energy….
Oil staying high, governments giving subsidies…
…and let's face it: something has to change, right? I'm " sort of" making a bet on it!
December 24th, 2009 at 8:28 am
This is called the Net Asset Value (NAV) and can usually be found on the funds web site. For exchange-traded funds, NAV should be almost identical to the market price. For closed end funds, it can fluctuate by a fair amount.
December 24th, 2009 at 3:06 pm
Look at your text book, it may hold the clue. If it does not, go to morningstar.com, the school probably has a subscription and look under their ETF tab.
December 25th, 2009 at 11:23 am
Dont buy gold itself…invest in the companys that mine it…you'll do much better….trust me, and use a good online brokerage co. that has good beginner qualitys {like tutorials or easy to understand set up}, i use zecco, better then schwab, etrade, etc. they are the only ones with free stock trades, no minumums..
http://friends.zecco.com/r/a7a2877caab8102b8555
December 26th, 2009 at 4:18 am
ETF's are NOT mutual funds. Don't let them say they aren't.
First, Mutual funds:
A mutual fund is a managed fund. You are essentially paying a manager to buy and sell a portfolio within the framework of a set of rules. The manager has discretion to weight the fund in any stock more than others, to keep a certain amount of reserve cash, and to buy bonds. Usually the rules of the fund prescribe limits to these actions, but they are pretty broad. These rules are in the prospectus. For this reason, if the fund changes managers, it's time to get out, unless the new manager has a proven track record in other funds.
Mutual funds have to pay taxes on their earnings, like a company would. When you redeem your money, you pay capital gains tax. So you are taxed twice.
Mutual funds often have rules about when you can sell your interest. Often you may have to hold the fund for a minimum amount of time after you purchase, as much as 90-180 days.
Mutual funds may require a "load" which is a percentage payment off the top, when you buy or sell the fund.
You may not buy options on a mutual fund.
ETFs:
An ETF tracks a fixed index of selected stocks. If they go up, the ETF goes up. There is no discretion for the manager to "weight" the fund or to hold bonds or cash reserves. It just reflects the stock market universe of the funds it holds.
ETF's trade just like stocks. That means a brokerage fee to buy and sell, but these days with deep discount brokers, that's negligible.
Because ETF's trade like stocks, they are free of rules. You can enter and exit a position on the same day if you like.
The ETF does not have to pay taxes on it's holdings.
And the BIGGEST advantage of ETF's is that you can option them, i.e. buy calls and puts against them. ETF's have an advantage over stocks, in that their options strike prices are set in dollar increments, which means you can fine tune your position based on the current fund price, instead of placing option positions sometimes $2.5 or $5 in or out of the money. This gives you an investing ability to take advantage of broad market conditions without exposing yourself to the volatility of a single stock.
Say that you hear housing is tanking, and builders and lender are losing money hand over fist. You can buy puts in a real estate ETF and ride the market down, where if you did that with a stock, you might be unlucky enough to pick the one company that's not sinking.
December 26th, 2009 at 2:49 pm
An ETF is an index fund as it holds a basket of stocks reflecting a particular index or sector. It can be bought or sold at any time during the day on the open market, and typically charges a fairly low amount for the management. Typically you might buy shares in an ETF, and 100 is the round lot multiple which is most easily traded, although many ETFs trade enough shares that you can get lower multiples traded as well. (eg. 83 shares at $12 for about $996). You'll pay a commission for each transaction, the amount varying with the brokerage you do business with.
If you're referring to index fund as a mutual fund which tracks an index, it its price is typically set at the end of the day, and can only be sold or bought at the end of day price. Depending on the company that manages this fund, the expense for doing so are typically higher than that of ETFs. The advantage of a mutual fund is that you may just decide to put, say $1000 into it and they'll divide up the number of shares that represents and you'd get the exact amount. The expenses are hidden and subtracted from the returns the fund generates (as with the ETF).
September 7th, 2011 at 11:01 pm
Actually these are the precise financiers which need safety of capital most of all. Make your selection with intelligence and correct planning. Ask around and be curious.
Your level of investment information and the time required to give to this subject will dictate which is best for you personally.
September 21st, 2011 at 2:07 am
If you have lots of money already, you could be the ideal applicant for a hedge fund investment. These varieties of investments are extra to ordinary investments. They try to defeat bear markets and bring in cash while they also milk the bull market and yield a higher return.
There are hazards in a hedge fund, ones the average financier would never take.