Hedge Funds: Lessons Learned

April 20, 2011 James Heinsman Hedge Fund News

Mistakes from the Past; Lessons for the Future

If you want to try your hand at investing, one good tip you can take on is learning lessons from the past. Over the last few years there have been significant opportunities for such lessons. For example, we learned in 2007 that when the market doubles is a good time to take your profits. But don’t be unrealistic or have high expectations. For example, the housing market will crash, as it did; don’t expect these things to go on forever.

2008-10 Lessons

The following year we learned all about risk management and how to hang on to capital. In 2009 those in the know figured out pretty quick that it was “vital not to overstay a bearish stance in the face of massive fiscal and monetary stimulus, even if the economy was in a deep recession for half the year.” Just a year ago we were taught the benefit and importance of dealing with market swings and to watch out for health care and what was happening in Greece amongst other issues. This year the markets are roughly the same and there is “plenty of optimism” vis-à-vis America’s equity market giving people some great trading opportunities.

Yet there are significant risks for purchasing power this year vis-à-vis monetary matters in Ireland, Portugal and Spain and of course increasing worries that America is going to exceed its debt roof as well as increased pressure from inflation.

Some Good News

Given all this history, what does it tell us for the future? Apparently there is some good news lying ahead at least for the near-to-long-term future. It looks like there will be “stable earnings growth” in America’s economy and with higher quality equities there will be “more sustainable returns” in time. You may also want to look towards buying energy sector commodities along with precious metals “as a hedge against recurring weakness in global currencies.” It also looks like there will be growth in the agricultural sector and thus its stocks.

Putting money into corporate bonds is a good idea, particularly the high-yield sector. Check out low volatility convertible bonds as well as “capital preservation strategies that go both long on assets they like and short the ones they don’t.”

Look at Canadian dollars for investments along with “faster-growing emerging markets,” the euro zone and what is likely to happen in Japan, despite its recent disasters. The country may have been knocked but it’s still standing and here to tell the tale and is fighting back fast.

So of course there are no hard and fast rules in hedge funds and markets. But there is something to be said for looking to what has happened in these areas in the recent past and trying to predict what may happen in the future, but always with a significant dose of caution.

America, Canada, equity, Greece, Ireland,

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