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Hedge funds have the potential for higher returns through highly leveraged speculation, but it is still governed by the principles of risk and reward. A large bet has both a large risk and a large reward. And to finish your thought on LTCM, it was making huge leveraged bets speculative bets. Yes, the reward paid off at first making 40% per year for around 3 years. Then the risk-side reared its ugly head and had to be bailed out by the Fed it had lost so much money!
I don't think a hedge fund to mutual fund comparison is really apples to oranges. Can anyone report that a hedge fund has beaten an index fund consistently, even after the expenses?
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