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Originally Posted by Olav23
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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downfall of LTCM was the law of large numbers again as well as copycats. they were great in their first few years and as people started copying them and they got in more capital they had to take more risks to make the same return. victim of success just like Peter Lynch and Magellan.
i forgot the guy's name but one of the Black-Scholes duo was part of LTCM. The one who believed in an efficient market and whose theory was torn to shreds in 1998
Jim Cramer beat the Sp500 over the long term. Blackstone has done it. Pretty sure T Boone Pickens has done it as well along with George Soros
it's apples to oranges because there is no such legal entity as a hedge fund. it's a nickname for a private investment partnership that can invest in almost anything it wants. Both Jim Cramer and George Soros ran hedge funds, but it was vastly different investments. mutual funds are limited to stocks and no derivatives
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