Wednesday, October 20, 2010

How To Build A Poor Man's Hedge Fund - CNBC

   To me, the market is a big game. It's the biggest MMORPG in the world where traders, investors, and scammers ply their trade in a daily battle of wits, wealth, and occasional treachery. Hedge funds used to be the gunslinging cowboys in the game but a lot of them were destroyed in the volatility of 2008-2009. Since many were destroyed, I found this opening paragraph from this morning's CNBC article odd:

"Ultimately unscathed and relatively unregulated in the post-crisis world of financial markets, the hedge fund space remains enormous in scope, risky in appetite and exclusive by design."

   Unscathed? Are memories really this short at CNBC? Need proof of hedge fund deaths in 2008? Here:

   Hedge Fund Research, a Chicago-based information company, said the number of hedge funds liquidated in the third quarter rose to 344, which is more than three times the 105 liquidations in the third quarter of 2007. It's also 77 more than the previous record of 267 liquidations in the fourth quarter of 2006.
   The data also showed that 693 hedge funds were closed in the first nine months of the year versus 409 in the same period last year. That's an increase of 70% and represents nearly 7% of all hedge funds, according to HFR.

   And that's only 2008. The rest of today's CNBC article titled "How To Build A Poor Man's Hedge Fund" talks about using ETFs to implement long-short strategies, commodities trading, currency trading, and other nonsense that no average JOE is going to be able to manage. If an average JOE was going to trade the ETFs mentioned in the article, I can confidently predict that JOE would have lost his ass within a year of attempting to build his poor man's hedge fund.

   My advice? Keep it simple, stupid. We're still in the early throes of a bull market. When immersed in a bull market, there is only one thing to do - buy. You heard me? BUY and sit on those shares for years. It won't be time to sell for another few years but when that time comes, I'll be here to tell you when to sell.  

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