Smarter investing - hedging

bowlhead99 wrote: »

Now, to some outside the world of investment management the strategies employed are gobbledegook and taking a punt on a manager who employs them is a gamble. But in the same way, owning shares in BP, Vodafone, Diageo is a gamble. If you don't know how to run an oil or telecoms or drinks business arguably you should not be allowed to own it and vote on kicking the directors out.

so it's lucky that most nominee accounts effectively disenfranchise small individual shareholders

however ... while i wouldn't know how to run any of those companies, i may have a opinion of how well their lines of business will do, whether they are reasonably valued at the current share price, and even about the competence of the management (though IMHO this is usually a less important factor).

and stepping back from individual companies, i may understand the likely returns - and the likely variation in the returns - from long-term ownership of (shares in) businesses. there are at least plenty of relevant statistics from which to form a view.

(... with the usual caveat that future returns may not be like past returns - and this is not just a general caveat: there is also the specific point that exponential growth cannot continue indefinitely in a world of finite resources. this suggests a downward revision of expected returns. but it doesn't prevent all attempts at prediction - of a very broad spectrum of possibilities.)

i may also understand that you can get smoother returns than from 100% equities, at the price of lower returns, by adding other asset classes (bonds, real estate, commodities, cash, ...).

that smoothing of returns, by reducing equity exposure, seems to be a part of what hedge / absolute return funds are doing. it's the rest of what they do that i don't understand. that's to say: i understand some of what they are doing - e.g. shorting a market, betting on an exchange rate - but i have no idea how to estimate long-term likely returns from this activity, nor likely variance in returns. which makes it look like gambling to me. which may be my lack of understanding. but then, without understanding it, buying into such things would be gambling for me.

innovate wrote: »

if enough people press the spam button on francisgrey's thread, it gets bombed out of existence. It shouldn't really exist so go for the button....

It worked, it got spam-bombed out of existence! Brilliant.

Now need to do the same with stevenwall's posts.