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The
U.S. Stock market has seen the
highest volatility since 1930.
Errors in analysts earnings forecast
of even a couple of cents a share
can cause the price of individual
stocks to rapidly fall 20 or 30
percent in one direction. Market
volatility is not only scary these
days but appears to be getting
more violent.
In the wake of recent stock market
woes, Individual investors are
increasingly seeking alternatives
to stocks and bonds. Alternative
investments with registered investment
advisers provide diversification,
consistent returns, and a low
correlation to volatile markets.
Alternative investments are a
category of investments defined
mainly by what they are not; that
is, not correlated with mainstream
stock and bond markets. According
to Goldman Sachs, U.S. pension
funds, endowments, and foundations
have more than quadrupled their
exposure to alternative investments
over the last decade.
Old tenets like, "Buy and
Hold" can no longer be counted
on to carry the day, especially
against major market declines.
Today we face uncharted waters.
with extreme volatility and valuations
though the last half of the 1990's.
Traditional managers have been
lagging the market on the upside
and doing worse on the downside,
giving investors the worst of
both worlds.
In the last five years, there
has been a real buzz about the
Hedge Fund industry beyond Wallstreet's
whisper network.
On hedge Funds: "It
is probably the most efficient
way to make money in the financial
world" says Jim Rogers,
who was George Soros's partner
for more than 10 years.
Many mainstream investors who
could benefit from hedge funds
are missing out, because they've
been told this realm of investing
is too speculative, too exotic,
too pricey, or too controversial.
But all that misperception has
changed in recent years. There
has been a dramatic surge in the
number of individual investors,
many of whom are affluent without
being super-rich.
In March 2000 article entitled
"Hedge funds: An industry
comes of Age" Bloomberg
magazine trumpeted the stellar
results delivered by the hedge
fund industry.
February 7th, 2000 edition of
Pensions & Investments
put it, "Hedge funds
are back and everybody has to
have one."
Most hedge funds reach
a targeted dollar amount and then
permanently close to new investors,
since their goal is to optimize
their performance. |
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