Investment Articles

We have all been taught about the merits of diversification in investments. It is a variation of the old adage, “Don’t put all your eggs in one basket.”

Indeed, professional investment managers are trained to develop portfolios according to the tenets of Modern Portfolio Theory (MPT). MPT traces its roots to the work of Harry Markowitz and his seminal writings on “Portfolio Selection.” In his pioneering research, Markowitz was able to demonstrate the mathematical basis for diversification.

Essentially, Markowitz showed that selecting assets that have a positive expected return but exhibit low or (preferably) negative correlation to one another produces a combined portfolio that retains the positive expected return properties, but with lowered risk (as defined by variance).

Theoretically, this result arises due to the presence of at least two major sources of risk: nonsystematic (or unique) risk and systematic (or market) risk. While it is very difficult to eliminate market risk, it is possible to reduce the risks associated with unique investment assets. By combining investment assets that are subject to certain specific, unique risks with other investment assets that are subject to other unique risks, it may be possible to reduce the overall risk of the combined portfolio.

For the past several decades, this has been the mantra to which all investment managers adhered. Unfortunately, recent experiences in the capital markets have led both academics and professional investment practitioners to rethink portfolio construction. With the increasing interconnectedness of global markets and investment pools, we have seen that correlation structures among various investment assets are not always stable.

In fact, assets that typically exhibit low correlation with one another can dramatically change direction and begin exhibiting increased correlation during periods of market distress. The increased correlation leads to a reduction in the power of diversification and thus to increased risk in the overall portfolio. Unfortunately, this upward shift in correlation happens at exactly the time when an investor needs correlation the most: market distress.

As a result, investment managers need to be exceedingly careful in constructing portfolios that are able to withstand the dynamic nature of correlations, especially as the market experiences large disturbances. These “disturbances” are becoming much more commonplace: the Asian currency crisis of 1997, failure of the major hedge fund “Long Term Capital Management” in 1998, the burst of the “dot-com” bubble in 2000/2001, the terrorist attacks of 2001, the burst of the real estate bubble in 2007/2008, and the credit crisis of 2008/2009. In nearly every case, correlation structures among various assets increased at precisely the time when investors needed protection the most.

The best portfolio construction techniques have an appreciation for the fact that correlation structures may change during different “states of the world” or regimes. By incorporating these state-dependent correlation structures into portfolio design and optimization, investment managers can move to better protect portfolios during times of market distress.

Sharath M. Sury – Founder and Executive Director of the Sury Initiative for Financial Innovation & Risk Management (SIFIRM) at Santa Clara University, Sharath Sury devotes his time and energy to bringing together thought leaders who can address the development of real-world solutions to the current economic climate. Sharath Sury has worked with some of the brightest and most experienced experts in finance and risk management and aims to bring a greater sense of ethics and responsibility to his profession. Through his efforts, Professor Sury has established this invaluable forum for the research and discussion of new developments in the world of economics and finance and has attracted a renewed spirit of innovation to the industry. Sharath Sury also serves as an Adjunct Professor of Economics at the University of California and Adjunct Professor of Finance at DePaul University in Chicago. Sharath Sury’s interest and experience in wealth management began as an Associate and later Vice President at Goldman, Sachs & Co. He later founded and worked at S4 Capital, where he earned numerous accolades for his work.

http://blog.suryonline.net
http://everything-finance.net

As the dust settles from the Wall Street meltdown of 2008, the average investor needs to chart a course that threads its way through future growth and perils. Simply relying on the old investment adages may not be the wisest course. Here’s some things to think about.

(1) Wall Street is not your friend. At this point, it should come as no surprise that the goal on Wall Street is to make money for Wall Street, rather than giving investment advice that the average investor can actually benefit from. Washington makes a lot of noise about reform, but don’t hold your breath about anything happening. We have gone through two major Wall Street screw ups since 2000 that cost most individual investors a good chunk of their portfolios. First was the attempt to convince everyone that there was a “new math” on how to value companies that had some relationship to the internet and, after that didn’t exactly work out, Wall Street moved to use the environment of easy money to package high risk real estate mortgages that fell apart when real estate values started to decline. Even though most investors never owned internet stocks or CDO’s, the collapse of these products helped drive down the stock market in general. To thrive, Wall Street must continue to find and distribute economic “hot spot” products. A good bet in the future might be derivatives created from “cap and trade.” After all, trading air seems ready made for the street.

(2) Take a new look at “asset allocation.” Although asset allocation models do not ensure a profit or protect against a loss, they have become the standard of investment models for many investors. The theory itself is over 50 years old. The world has changed since Dwight Eisenhower was in the White House. Thanks to a developing global economy, asset class correlations are becoming more similar and this increases volatility in a portfolio. Don’t exit asset allocation like the last helicopter out of Saigon, but do avoid the rigid “pigeon holing” of asset classes that’s become prevalent in asset allocation design. Investment managers today need the flexibility to move a little if the asset class returns really moves against them. You can’t take your boat out without a life preserver on board. Your portfolio should be no different.

(3) Does passive indexing investing still work? Index investing was the “flavor of the month” back in the 1990’s when proponents of “efficient markets” promoted that it was so difficult to beat the market that everyone’s best bet was simply to mirror a market index and go to the beach. Today, the market is full of inefficiencies and with the S&P 500 flat lining over the last decade, it’s time to pour the sand out of your shoes and get back in the game.

(4) Portfolio “compression” is the next best idea. The average investor doesn’t need to squeeze all the upside out of a bull market as long as there’s some protection against the next bear. Cutting portfolio volatility should be on your new year’s resolution list. The future market road will continue to be rough and rocky roads generally demand good shock absorbers. If you are a competent investment mechanic, by all means install them yourself. If you need a qualified mechanic, seek one out. If you enjoy a really rough ride, just hang on with your current portfolio. You may get a few teeth knocked out, but that’s not what’s going to hurt the most.

Although the stock market is going through a tough patch, it’s still where a lot of the action is to outpace inflation and grow funds for the future. No promises, no guarantees, but that’s always been the story from the beginning. Going forward, caution will be your best friend. One old adage you will still be able to hold near and dear is that if it looks too good, it probably is.

Glenn (”Chip”) Dahlke, a senior contributor to the Living Trust Network, has 30 years in the investment business.

Copyright 2010. Living Trust Network, LLC. All Rights Reserved

The results are in! Roughly 260 people took the time to respond to the first income investing survey and I thank y’all very much for being so generous with your time. First, the generalizations:

As you will recall, the survey included eight “mostly true” or “mostly false” statements. Most people answered all of the questions without explanation or analysis (as requested), and most of the analysis explained exceptions to the “in general” nature of the questions being asked. All of your comments were well thought out, most were right on target and much appreciated.

Unanswered questions were judged half right and half wrong because there were too many of them to label totally wrong and wind up with meaningful statistics. Still, as a class, those who responded barely achieved a passing grade. A composite grade of just 72% correct is pretty scary.

Only 20 people assessed all eight statements correctly.

Here are the individual item results, based on my forty years of investment experience, including 35 managing OPM (other people’s money) professionally.

1. Tax deferred income is better than tax-free income. This turned out to be the easiest question of all, as 92.3% of you correctly labeled it “False”. One lesson to be learned early in your investment life is to grow a personal, tax-free, portfolio. “Uncle” has dibs on your retirement plans— all of them.

2. All individual investment portfolios eventually become retirement income portfolios. 38.5% of you failed to get the point— you can’t spend market value unless you sell the securities, and there is no guarantee that the market will cooperate with your retirement plans. Eventually, this one rings “True”, loud and clear.

3. An income investment portfolio should have a stable market value. In thirty-five years of investment management, I’ve determined that the single biggest error investors make is their focus on the market value of income securities. Stable income yes; stable market value – not! Roughly 25% of you incorrectly put this one in the “True” column.

4. Income investors should seek out mutual funds with the highest “total returns” to insure increasing levels of income. You did even worse on this one. 27% thought that higher total returns mean higher income— not at all. “Total Return” analysis is a mutual fund shell game. You can’t spend the growth— and you really should avoid open-end Mutual Funds as income providors.

5. Most often, market value changes will have no impact on the income generated from income-purpose securities. I was not surprised that so few respondents agreed with this mostly “True” observation. Clearly, too many investors (25%) are unclear on the nature of income securities.

6. 401(k) and IRA programs are excellent pension plans. Half of you, that’s 50% people, think of your defined contribution, self directed, savings plans as pensions. Shame on everyone: the government, financial advisors, tax and estate professionals, employee benefits professionals, RIAs— all of us.

7. Government bonds carry the lowest risk of loss, BUT they do fluctuate in market value. Nearly 25% of you missed the boat on this how-could-you-not-know-that “True” statement. My mouth stayed open for days.

8. Tax-exempt dividends in excess of 6% were paid without interruption throughout the financial crisis and remain available today. Also “True” at the time of the survey, and still true today— and only a handful of you emailed me for an explanation.

In summary, there were four generally “True” and four generally “False” statements, and I do appreciate that individual circumstances may make for some slight change in assessment. But if this were a “college entrance exam” for future retirees, retirement planners, or investment managers— well, barely passing just doesn’t cut it.

Many of you will disagree with my assessment. That’s fine, I expect to be beaten up a bit by people who are unfamiliar with my approach. But please be gentle, or at least civil.

Remember, your participation has earned you a free workshop, and thanks again for the input.

Steve Selengut
http://www.sancoservices.com
http://www.valuestockindex.com

Professional Portfolio Management since 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

Firms and managers who are registered with the CFTC must follow compliance rules by completing a self-examination checklist. Every year firms need to do a self-examination, and some firms are hoping to make this process easier for investment managers by creating more organized lists online. NFA checklists include rules to be followed by specific registration categories such as CTAs, CPOs, IBs, and FCMs, as well as general rules that need to be followed and tasks to be completed for all registered firms. Managers are finding it more difficult to stay organized and up-to-date with regulations, as well as informed of their own firm’s issues, and these checklists are designed to keep managers’ compliance issues limited.

Compliance is an important topic for investment managers to stay informed and organized with, but many compliance rules are extremely difficult for most managers to understand and follow. The CFTC has recently created new forex registration regulations, and CPOs, CTAs, and IBs are now required to stay in compliance after becoming registered. The NFA has provided a list of rules to be followed, that can be checked off as the firm goes through the process.

Many firms will find it easier to adjust the format and structure of these lists, in order to clarify their place in the NFA self-examination checklist and record any issues with an individual rule. Many managers need to be able to go back and forth between the checklist and other priorities without fear of losing their place in the self-examination or trying to remember what rule they need to check next.

There are also several appendices throughout the checklist that further explain a rule in greater detail, and these additional guidelines need to be kept in an accessible place for the firm or manager to refer to when needed. There are also mentions of several CFTC forms that need to be completed throughout the year, and managers will need to record the completion of these forms as well. Additionally, firms need to find a way to document that they have fulfilled the self-examination requirement each year for their own personal records.

With the release of the new forex regulations and the requirement for CPOs, CTAs, and IBs to become registered through forex registration, following compliance rules has become a greater issue. The yearly self-examination aims to offer both the firms and the NFA with ways to stay on track with new and changing rules.

Ariana Adams writes articles on forex registration. You can access more information by going to http://www.forexregistration.com

Regular readers will know that after extensive research and much experience, we favour passive investments. That is to say that our clients will accept the level of return that fits their appetite for risk over the long term. In addition, we can access institutional funds instead of retail funds and reduce costs which result in ‘performance drag’.

This way of investing is backed by investment guru Warren Buffett who said:

“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees”.

Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.’

In many cases we also find that the new client does NOT NEED to take as much risk as they are doing, and we can reduce the risk whilst still allowing them to achieve their goals in life.

However, there are still many investors who are not aware of this, or who feel that they can genuinely beat the market in the long term despite all the evidence to the contrary.

Many of these investors will use well known investment managers with household names. Well, an article in the press came to our attention recently which, putting aside the passive/active debate, we feel is quite shocking.

We will not name this company, but it decided to float on the London Stock Exchange. It was valued at £676 million, despite losing money last year, and having debts of around £300 million.

As a result of the flotation, the two key fund managers received £15 million & £9.5 million! The rest of the employees then got £14 million in Christmas cash, and also have something like £70 million in shares.

So, what about all the investors who have given their money to this firm in the hope that they will perform. What did they get?

Well, many of this company’s funds have languished at the very bottom of the performance tables.

It looks like the familiar story of growing their own wealth whilst totally ignoring what should be their real remit which is growing YOUR wealth!

Of course, this story of greed is not unique, but adds to our determination to operate as we do now by largely being able to ignore this type of company, and always putting you the client first.

In a similar vein, we met new clients recently who had getting on for a million pounds in various investments such as ISAs and Pensions. Their main remit was to get organised and develop a strategy to be able to work part time from their early 50s.

They had used a standard commission based adviser up until now, but found that he did not contact them very often unless they wanted to buy another investment. This is very common, but what shocked them was that they were not aware of the considerable amounts of commission the adviser was taking each year putting aside new investments.

This is called trail commission, and is typically 0.5% of the total investments held. The insurance companies and investment companies (like the one above) pay this automatically to the adviser. So what it boiled down to is that this adviser was being paid something like £5,000 pa from their investment pot for…nothing!

If he was giving a fantastic service with regular reviews etc then you could argue that is one thing, but as is only too common, this is not the case. We find that what particularly galls new clients is that they have no idea that they are paying this money out!

By the way, if you have bought products in the past directly from the investment company, you may find that this 0.5% that the adviser would normally receive is simply absorbed by the company.

The Financial Tips Bottom Line

When you work with an adviser, make sure that they are fee based and will carry out the work you want done not only now, but on an ongoing basis.

You then agree with your adviser what fees you will pay to get this service – this should be a written agreement. But if ALL THEY TALK ABOUT is investments, and it’s a fee not a commission, then get another opinion.

ACTION POINT

Make a list of all your investments and ask your adviser or company what costs you are paying annually. If you find, like many investors,that you are paying out hundreds or even thousands of pounds a year, what are you getting for this?

Ray Prince is a fee based Certified Financial Planner with Rutherford Wilkinson ltd, and helps UK Resident Doctors and Dentists plan to achieve their financial objectives. Just visit http://www.medicaldentalfs.com where you can request your free retirement planning guide.

Rutherford Wilkinson ltd is authorised and regulated by the Financial Services Authority.

In order to get started investing you just need some willingness to learn and apply sound, proven to work principles. You can get started immediately without having much investment wisdom at all about the stock market or other investment instruments. When you begin investing you should be a conservative-moderate investor with a relatively low risk tolerance. This way you will have a way to grow your money with little risk, while you learn more about investing. However, a general rule of thumb in long-term investing is that the younger you are, the more risk you should take and aggressive you should be. However, this considers that you have performed your due diligence, have learned enough about all of your options, and properly assessed your investor profile.

One very easy first investment you can make would be an interest bearing savings account, chances are good you already have one. If you do not have one of these accounts you should; they can be opened with usually only $100, sometimes even less. A savings account can be opened at the same bank that you do your checking at, or at any other bank. One good idea may be to open this interest bearing savings account with an on-line bank that has no physical location near you, this way it forces you to keep the money in the account longer and make less frequent withdrawals. One of these types of interest bearing savings accounts should yield 2 – 4%.

Another good option you have when starting investing is to invest in money market funds. Money market investments can be made through nearly any bank. These funds have higher interest payouts than typical savings accounts, and they work much the same way. Money market accounts are also short to medium-term investments, because of this your money will not be tied up for a long period of time and still appreciate in value.

Certificates of Deposit are also investments with very little to no risk. Interest rates on C.D.’s are normally higher than those of savings accounts or Money Market Funds. You have the option to select the duration of your C.D. with interest paid regularly until the maturity (duration end) date. Another pro about C.D.’s is that they are insured by the bank and governmental agencies.

Other options for you to choose when first starting investing are treasury securities (low risk), bonds (low to medium risk), mutual funds (low to high risk), and exchange traded funds (low to high risk). However these options require more due diligence than those mentioned in the previous paragraphs, and the latter of these options (mutual funds, ETF’s) generally have more risk as they are related to stocks.

When just starting out, any one of these options above are great beginning points for delving into investing. All of these options will allow your capital to grow for you while you learn more about investing in other, higher yielding (higher risk typically) investment opportunities.

*Note: An excellent resource for checking saving account yield rates is Bankrate.com

Author: William Lemerond, Financial Advisor & Investment Manager Website: http://www.SLEYCapitalAdvisors.com

SLEY CAPITAL ADVISORS L.P. is a fee-only and independent financial advisory services firm servicing all of southeastern Wisconsin. Our flexibility when it comes to developing your investment or financial plan means you receive the utmost comfort and satisfaction with your finances. Visit our website to review our distinguished philosophy and process. We also offer a FREE Report with great investment advice and strategies, so visit the site to opt-in for free. Also, for free daily “Seedlings For Your Healthiest Money Tree” please visit our Blog: http://www.sleycapitaladvisors.blogspot.com.

Smart investing includes risk management; however, most people focus on how much money they can make without paying attention to strategically analyzing risk. It is important for an investor to fully understand the concept of risk before embarking on an investment plan and to implement certain safeguards to ensure their success rate is increased.

In investment terms, risk is associated with the end of period value of the investment and the primary concern for any investor is a reduction in value of the original sum invested. There is no way of completely eliminating financial risk, even with the placement of assets in a bank account, therefore, a strategic investment plan should incorporate risk reduction techniques that have proven to create a greater opportunity of coming out ahead.

The most frequent techniques for reducing risk in investment are diversification, dollar cost averaging and time, and in order to better understand these areas we will expand upon their meaning and how they can be implemented.

Diversification

Diversification in finance mixes a wide variety of investments within a portfolio and can include investing in different markets, regions or countries. Diversification is a frequent practice of investment managers to reduce risk without substantial reduction in returns.

Diversification reduces risk because markets do not always move in tandem and many financial instruments will react differently to market conditions. A balanced portfolio will be less volatile than one that is concentrated on a single asset and can include the following strategies:

1) Spread the portfolio among multiple investment vehicles.
2) Vary the risk in securities.
3) Vary by industry or geographical location.
4) Vary the investment managers and the strategies used by those managers.

Dollar Cost Averaging

It is an investor’s dream to be able to enter the market at its bottom but nobody can really tell when a market has ever reached this point. In reality, we will often see people get caught at the top of the market instead of buying low and selling high.

Dollar cost averaging is a timing strategy of investing equal dollar amounts regularly and periodically over specific time periods and is a technique that prevents investors from putting all their money in the market at the inappropriate time.

Time as a Risk Moderator

Time not only works for investors through the power of compounding but also helps to dampen the risk of investments. If we look at most major markets, we will see that the stock market will usually follow an upward trend with interim fluctuations. By focusing strategies on a long term basis, many of these fluctuations can be leveled in comparison to the overall performance as recoveries happen and markets will often surpass a previous high. It is worth noting that there is no specific formula for time as a risk moderator and indefinite waiting periods could be considered when implementing.

For any investor, the primary step in the formulation of a successful strategy should be the setting of an investment objective. Although “to make money” may be a fair representation of your goal, it does not focus on the strategic process that needs to take place in order to achieve what we have originally set out to do. The investment objective must be realistic and specific and should take into account the risk tolerance, personal needs and circumstance and any constraints that the investor may have.

It is recommended that every potential investor carries out a financial needs analysis. Many companies are available to help with this and provide the direction and equipment needed to carry out a proper analysis and most should carry this important service out free of charge. It is also vital that any company that assists a potential investor with their strategy should describe these risk reduction techniques in greater detail and explain the ways in which they can be incorporated into an investment plan.

For a free financial needs analysis and comparison of the market, contact Alliance Insurance Services on 2891 8915 or visit http://www.alliancegroup.com.hk

Alliance Insurance Services is an independent broker and provides services for Health Insurance, Life Insurance, Savings and Investments. For further information please visit http://www.alliancegroup.com.hk

Back in the day the standard practice was to invest your money into funds such as unit trusts by completing an application form and sending it to the investment manager together with a cheque in the post. You had no idea when the application would be received by the manager and therefore when your money would be invested. The only confirmation of this happening would be when you receive your contract notes in the post some time after.

It was also standard practice, and still is for many, for the investment manager to charge up to 6% initial commission. So for every £10,000 you would actually have £9,400 invested. If you invested through a broker or financial adviser they would typically receive 3%, or £300, out of that £10,000 investment before the money is even invested.

Nowadays the story can be quite different. I say can be because it is not necessarily so. Most investments you make will still follow the same process as above.

However it does not have to be that way. These days you have discount brokers such as Investor Profile that provide a fully automated system that allows you to invest online, safely and securely, quickly and easily. There is the minimal of effort involved in making your application.

You have what is called a fund supermarket to go shopping in. That means rather than only being able to choose from the fund range of a particular investment manager, on a system such as that provided by Investor Profile you can choose from funds provided by all sorts of different fund managers, all in one place, then continue to view your various holdings in one place. A fund supermarket such as this can hold as many as 1500 funds for you to choose from.

You would think that for this added ease of use and flexibility of choice that the broker/financial adviser is finally earning their money. But in fact the new breed of online investment providers actually discount the initial commission you pay.

Investor Profile does not believe you should pay such high initial commissions so promise to not take any initial commission at all. That’s 0% commission to Investor Profile every time you invest. That’s because we believe you should have more money invested at the beginning because this is proven to help you earn more in the future.

So when considering how, when or with whom to invest the benefits of investing online are compelling and indeed changing the industry. For years the investment managers have been creaming off money every time people invested in their funds. Now the good guys are coming to town and they’re here to help you do the right thing so that you can benefit for years to come.

Jaskarn Pawar, Director, Investor Profile Ltd

If you are a UK investor with ISA, Personal Pension or Unit Trust investments then Investor Profile’s free online investment monitoring service could be what you need.

Back in the day the standard practice was to invest your money into funds such as unit trusts by completing an application form and sending it to the investment manager together with a cheque in the post. You had no idea when the application would be received by the manager and therefore when your money would be invested. The only confirmation of this happening would be when you receive your contract notes in the post some time after.

It was also standard practice, and still is for many, for the investment manager to charge up to 6% initial commission. So for every £10,000 you would actually have £9,400 invested. If you invested through a broker or financial adviser they would typically receive 3%, or £300, out of that £10,000 investment before the money is even invested.

Nowadays the story can be quite different. I say can be because it is not necessarily so. Most investments you make will still follow the same process as above.

However it does not have to be that way. These days you have discount brokers such as Investor Profile that provide a fully automated system that allows you to invest online, safely and securely, quickly and easily. There is the minimal of effort involved in making your application.

You have what is called a fund supermarket to go shopping in. That means rather than only being able to choose from the fund range of a particular investment manager, on a system such as that provided by Investor Profile you can choose from funds provided by all sorts of different fund managers, all in one place, then continue to view your various holdings in one place. A fund supermarket such as this can hold as many as 1500 funds for you to choose from.

You would think that for this added ease of use and flexibility of choice that the broker/financial adviser is finally earning their money. But in fact the new breed of online investment providers actually discount the initial commission you pay.

Investor Profile does not believe you should pay such high initial commissions so promise to not take any initial commission at all. That’s 0% commission to Investor Profile every time you invest. That’s because we believe you should have more money invested at the beginning because this is proven to help you earn more in the future.

So when considering how, when or with whom to invest the benefits of investing online are compelling and indeed changing the industry. For years the investment managers have been creaming off money every time people invested in their funds. Now the good guys are coming to town and they’re here to help you do the right thing so that you can benefit for years to come.

Jaskarn Pawar, Director, Investor Profile Ltd

If you are a UK investor with ISA, Personal Pension or Unit Trust investments then Investor Profile’s free online investment monitoring service could be what you need.

Many people within the business industry would have thought about making better use of their money and have come up with ideas of the future of their money. A good businessman would spend much of their time researching and studying the financial market, as well as work on developing their business management skills. A relatively new businessman will come across terminology and phrases that are both unfamiliar and confusing, making it vital that they take some time out researching.

An important investment move that business people will hear of is hedge funds. This is an investment fund for a limited range of investors made eligible by a range of regulators who undertake a wider range of investment and trading ventures. A hedge fund has its own investment strategy which helps to identify the type of investments and methods used for the investment. This kind of investment uses shares, commodities and debt, and keeps some of the risks inherent in these kinds of investment at bay through short selling and derivatives.

The reason why hedge funds are only offered to a limited range of professionals and investors is because of their previous investing portfolio and income. The opportunity for hedge fund investment provides them with exemptions in regulations that govern short selling, leverage, derivatives, fee structures and liquidity of interests on the funds. Hedge funds can see many of these investors return a net asset value into billions of pounds. This investment is certainly the top most sought after investment opportunity, dominating most specialty market like trading within derivatives and debt.

The first recorded hedge fund investment was created in 1949 by Alfred W Jones, whose background lay in financial journalism. His belief lay in the theory that with individual assets where there is a price movement is similar component due to the market overall and due to the performance of that asset. He put his theory to the test and expanded on his portfolio buying assets that would accrue stronger prices and short selling assets that would have weaker prices. The end result was that the price movements would be cancelled out in that the loss on shares that have been short sold would be cancelled out by the extra gains made on the assets that had stronger prices.

Hedge funding was coined from the idea of hedging the risks involved in this kind of investment and allows for the investment manager the freedom to decide upon the investments on a purely commercial basis.

Gino Hitshopi is an expert on hedge funds having researched this kind of investment when studying financial journalism. For more information visit http://www.preqin.com/