Expert: Steve Hach - 10/3/2010

Question
You always hear of hedge funds "adding/cutting positions" and "annual portfolio holdings" etc. These sound like long term investing strategies to me, but I always thought that hedge funds were into aggressive day trading/scalping etc; I just cant find any info on their exact method of making money. So what are the daily routines or day to day operations of a hedge fund specifically?


Answer
Nicolas,

That is too broad a question.

In the purest sense of the term, a "hedge fund" is an investment vehicle that seeks to make money no matter what the overall market is doing.

They often may make different bets on the market and cover their bets with some sort of opposite bet in order to "hedge" against a market downturn.

But, they are not limited to stocks, bonds, commodities, or anything else.

They have many different styles with the overall goal ALWAYS being to make money no matter what.

Some may be focused on short term trading, some may be long term, there is no overall style.  They may be long, they may be short, they may be "market neutral," they may be working commodities like oil and gold, etc.

You can google it and find out a lot about hedge fund strategies.
See, for example, the section on strategies found at this link:http://www.magnum.com/hedgefunds/strategies.asp

You might consider reading the book "hedge hogging" to find out more about the operations of a hedge fund manager.

Best,

Steve