So......


The cat who created the mathematical formula you could use to count cards, and spawned thousands of math nerds who went to Vegas to win big duckets in Black Jack?

Also started the first hedge fund.

Need I say more?

LOL

But seriously....

It's hard to quantify the term "Hedge Fund" because they don't all work in the same way.

But the basic idea that is that they're trying to make money off of movement in the market, as opposed to just making money from the market going up.

So they utilize a combination of short and long strategies to not only "hedge" their bets, but to protect their investment.

Here is a simplified but true life explanation:

Back in the spring of '07 I was watching the Chicago Tribune buyout and wanted to make some money off the deal, I did some research and found some options that fell into my own little model for options.

SO

I bought Puts and I bought Calls and just sat back and waited for my money to show-up.

The way the options were priced I was going to make a huge win no matter what direction the stock went, a win that would easily cover my loss from the other direction.

So at that point I didn't care what direction the stock went, I just wanted it to move.

So basically hedge funds are doing this via a variety of methods it could be a software (Qaunt) model, it could be some evil Genius, etc, but they're looking to make money off of volatility.

They might evaluate potential buyout deals and go the merger arbitrage route, going long with the target and short with the acquirer.

You might say:

Well I think Ford will show some short-term strength due to not needing government cash right now, but since their debt is so ridiculously high I think it will lull them into a false sense of security and destroy them in the end.

SO I'll buy shares for now, dump them when they get to a particular point and then short-term.

Or you might buy and sell certain stocks based on news - you theoretically could've been doing that with Citi all day....buy it when it drops and sell after some fool says "Citi is going to $20.00"

LOL

It's playing both sides of the ball, being clever (or evil) and investing outside the box......



....and that's just scratching the surface.

It's also why Cramer seems to contradict himself, he's thinking like a hedgie not an investor.

Disclosure: The ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice. Try to make an investment based off of this and you're on your own pal.


Peace,








M2

The Blog: http://www.analyticalwealth.com/

An assassin’s life is never easy. Still, it beats being an assassin’s target.

Enjoy your money, but live below your means, lest you become a 70-yr old Wal-Mart Greeter.