So why are hedge funds more stable? Why can hedge funds make a profit? Why are hedge funds more operational than traditional investments? What are the core values of hedge funds? What is the operating principle and significance of hedge funds? The following explanation only comes from personal thinking.
Hedge funds buy and sell value-related products at the same time, such as gold and silver, because their basic use attributes are basically similar, so their price trends will be very close. At this time, buying gold and selling silver can basically eliminate the large-scale risks brought about by market fluctuations. For example, when the war comes, the price of gold will rise, and the price of silver will also rise, so the part that buys gold will be profitable, while the part that shorts silver will lose money. At this time, the investment portfolio will generate investment risks. Therefore, in a sense, hedge funds have higher insurance functions than traditional funds.
If only from the above example, hedge funds are indeed stable, but it is completely meaningless, because if the prices of products are exactly the same, why do you rely on them to make a profit? Just like you buy a catty of apples at the market price in the same market and sell a catty of apples at the market price, you naturally have no risk, but you can't make money, and you may have to pay extra operating costs such as time loss and staff expenses. At this time, we should pay more attention to the operation principle and means of making money of hedge funds.
The investment targets of hedge funds are very similar to those of traditional funds. He needs to make investment choices through comprehensive evaluation of the investment objects, that is, he will also choose investment products with positive development potential. The main difference between him and traditional funds is that he will choose to hedge the investment object while investing in the main investment object.
For example, if hedge funds think that a steel company has better management efficiency, cost advantage, talent advantage and market advantage compared with other relative steel companies, then hedge funds will make a portfolio by buying the steel company and shorting the steel industry.
Traditional funds still need to be judged by observing the development of the steel industry and the position of the whole market. In this example, hedge funds don't need to care about the development prospect of the whole steel industry, the overall operation of the steel industry, or even whether it is a bear market or a bull market. The only thing that fund companies need to care about is that the selected company is better than other steel companies.
When the whole steel industry falls collectively, the company they choose will definitely fall because of the decline of the whole industry, and their investment in this company will lose money, but the profit of their short investment in the steel industry will definitely be higher than their loss, because the company they choose is the best in the steel industry, in other words, the most resilient.
The profit feature of hedge funds is that they don't need to pay attention to all the characteristics of investment products, only need to pay attention to some special characteristics, and then look for hedging products in other non-special characteristics to offset risks.
This greatly simplifies the investment behavior. When we invest in a company, we only need to consider whether it is better than its competitors, and we don't need to consider the ups and downs of the macro environment and other unknown factors, because hedging means will solve these risks for us.
In other words, hedge funds are more flexible than traditional funds, so the investment targets, investment opportunities and investment opportunities of hedge funds are far more than traditional funds, which is also the reason why hedge funds can exist and continue to make profits.
The core value of hedge funds lies in that we can invest according to a characteristic of investment products, which reduces investors' worries, so that they don't need to worry too much about the changes of the whole macro environment, which reduces the variables in investment consideration and makes investment judgment easier and more active and effective.
The existence of hedge funds makes the means of financial investment more diverse, the excellent characteristics of excellent companies in the market are more easily concerned, they can grow faster through investment, and the law of survival of the fittest in the market can be promoted faster. In a sense, it is also reasonable for hedge fund managers to criticize Buffett's inappropriate investment methods.
Of course, hedge funds also have some risks. Because the profits of hedge funds come from hedging products, and a large part of the profits are offset by the hedge investment itself, just like buying gold and selling silver, a large part of the profits from buying gold will be consumed by selling silver. Because of this, the amount of hedge investment is much higher than that of traditional funds. At this time, it will be common to borrow money for hedge portfolio investment through financial leverage.
At this time, if the price correlation of the selected portfolio loses its function, then the whole hedge fund will immediately face huge losses or even bankruptcy. It was once said that LTCM, a long-term capital investment company with N Nobel Prizes and geniuses, was shattered because of the unbalanced bond price correlation between Germany and Italy.
The concept of hedge fund has not been put forward for a long time, and it needs the long-term test of the whole financial system and market, but the wisdom contained in it can make people think for a long time. I believe it is fairer for hedge funds to regard hedge funds as an investment method rather than a speculative method. The advantage of the market is that you don't have to pay attention to other people's stupidity, as long as nothing is impossible where your mind touches.