hedge funds
they suck seriously unless you have over 500 million dollars then starting and operating a
hedge fund really doesn't make sense now i have a lot of respect for Stephen from
coffeezilla however i watched a recent video of his where he had I think Patrick Boyle on his show
and i feel that Stephen gave too much credibility to a hedge fund manager because the fact is that
as a hedge fund manager you are not incentivized to generate alpha returns relative to the market
which is one of the reasons why the majority of hedge funds do not even beat the s p 500
then if you factor in where a regular retail investor can purchase the s p 500 and then sell
covered calls against it i would estimate that you would generate greater returns than 95 of the
hedge funds out there so for youtubers to think that a hedge fund manager is the end-all be-all
it's not like that and coming from someone like myself who graduated from an ivy league
university who has a lot of friends at hedge funds who worked at morgan stanley, CIBC World Markets
and Petsky Prunier I spoke to private equity firms and hedge funds multiple times a week
i can tell you that unless you have over 500 million dollars it doesn't even make sense
for you to own an official hedge fund because the fees and the regulations are so crushing
that again it is not even worth your time to operate a hedge fund many hedge fund managers
are asset gatherers their goal is to seek and increase their assets under management as much
as possible so that they can collect that two percent a year that they charge their clients
the typical structure of a hedge fund is that they charge two percent a year to all of their
assets under management plus they get 20 of the returns in excess of the s p 500 as a result
the majority of the fees are coming from the asset management component where essentially the hedge
fund is collecting 2 percent for doing no work if the hedge fund does not make money and they
perform worse than the s p 500 then they still collect the two percent management
fee additionally hedge funds are not incentivized to take risks because the worst thing that could
possibly happen to a hedge fund is redemptions meaning people taking their money out
so it is not in the hedge fund's best interest to try to hit a home run because if they strike out
and then a lot of their clients redeem their money and pull out of the fund then that hedge
fund might actually have to close down so as a result from my experience it is not worthwhile
for anyone to run a hedge fund unless they have over 500 million dollars in assets under
management the fees the regulatory filings the regulations are just too cumbersome and they're
just too overwhelming and for many people who are putting hedge fund managers on a pedestal
because they believe that hedge fund managers know more than the typical retail investor
i can tell you that that's a really bad way of looking at things do not think that you're
inferior to anyone do not believe that just because someone is a hedge fund manager and
they have a fancy title that they know more about the stock market that you do because in reality
the stock market is not necessarily something that rewards education prices in the stock market are
relatively accurate meaning it is reasonable to assume that prices of a stock reflect all of the
available public information as well as the market factors that are influencing the price
as a result it would be foolish for a retail investor to put a hedge fund manager on
a pedestal and assume that they know more about what influences the price of a specific security
than others i remember in the past when i was in my teens and early 20s i used to think that
a stock was undervalued and what i would do is i would just buy it and then i would hold it
and oftentimes i would have to wait three or four years for the market to recognize that i was right
and sometimes the price of that underlying stock never went up sometimes i lost money so for you to
think that based upon some type of fundamental analysis that the market is mispricing a
security and that you know more than the market in aggregate in my opinion is pretty foolish the best
way to invest and trade in the market is to assume that prices are relatively reasonable and the
market does a reasonable job of reflecting all of the available inputs in the current market price
and as a result when you think that way then you come to the realization that nobody knows
more than you do and nobody knows less than you do instead the best thing to focus on is
your trading and investing strategy which is why i recommend selling options because when you sell
options each trade has a positive expected outcome or if you don't want to learn options trading then
you can simply buy the s p 500 or buy tesla amazon facebook or a large cap underlying
that has a very liquid market and then just simply sell covered calls against that security
David Jaffee with beststockstrategy.com let me know your thoughts on
hedge fund managers and whether you believe that they deserve to be placed on a pedestal
if you have any questions leave a comment below and i appreciate your attention