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Comment by anthonyrubin | Hacker News Reader

The recent financial reporting has been pretty atrocious.

"This unregulated, at times volatile corner of finance which is supposed to make money in bull and bear markets lost $180 billion during the last three months."

Our financial systems are heavily regulated. The specific regulations that the author would like to see may not exist, but this does not justify claiming that hedge funds are unregulated. Many people seem to believe that all risk should be regulated away and actually believe that this is possible. More information on current regulations that hedge funds are subject to:

http://www.forbes.com/opinions/2007/04/13/hedge-fund-regulat...

"Many hedge fund investors, particularly the wealthy individuals, are flabbergasted by their losses this year. The average fund was down 17.6 percent through Tuesday, according to Hedge Fund Research."

The S&P 500 is down 40% for the year.

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I beg to differ. As far as recent financial reporting goes, this is a pretty fair account. Although the financial system in general is regulated, hedge funds are unregulated as compared to mutual funds. If you want to know more about a given mutual funds, you can login to your online broker and see the prospects, asset allocation, turnover, financial statements, etc. Not so for a hedge fund. This is not to say that they're unsufficiently unregulated, it's just a statement of a fact (if hedge funds were more regulated, they'd probably cease to exist!).

Another important point is that many hedge funds are, or at least claim to be, equity-market neutral. They do it by short selling and by investing in other asset classes. So the fact that S&P is down 40% is a perfectly good excuse for a index fund manager, and a fairly good excuse for an active mutual fund manager, but not a very good excuse for a hedge fund. In fact you can see some hedge funds apologizing for the bad performance: http://dealbreaker.com/images/thumbs/TPG%20Axon%20Investor%2...

Agreed, I would have like to be down 17.6% this year instead of whatever I am actually down. Luckily, I pulled most money out last spring to travel and start a company - best investment I have ever made!

I'm only down 2%. You can give me all your money and I'll invest it. Or rather, I won't, but that will save you even more money!

(And then you can curse me when we get hyperinflation, the stock market shoots up, and all that cash becomes useless.)

Did you cash out because you suspected the market was due for a big correction?

Or were you just lucky to have assets in cash at the right time?

A little of both.

When I was first starting my startup, I figured I ought to rebalance my portfolio just so I could forget about it while I worked. Tallied everything up, divided them up by asset classes, and figured out what dollar value I wanted in each fund. And I moved some of it around, into bonds and out of individual stocks and such.

But when it came to putting money into an S&P 500 index fund, I just couldn't do it. I had the Vanguard website open, everything ready to invest, form filled out, but my gut told me that there was no possible way that the stock market was worth what the ticker said it was worth. I'd previously worked at a financial software startup, so I had all the stats on market P/E, record earnings, leverage levels, etc. So I closed the window and forgot about it.

This was on Oct 5. The S&P 500 peaked on Oct 11.

So yeah, a whole lot of luck, and maybe a little knowledge thrown in. I tell this story because everyone here's coming up with excuses for hedge funds: they're "only" down 17.6% when the market is down 40%, or they got those outlandish returns with less risk, or they're really really smart and so should be compensated for those sophisticated quant models. But excuses don't matter in finance - only your return. Ultimately, it's a whole lot of luck and a little knowledge - for everybody. I predict we'll see many, many more hedge funds do a lot worse in the coming year.

So, at what point are you going to reverse that decision, or what do you think are currently good investments for a retirement beyond 20 years from now?

Especially passive management investments?

I think the market is pretty close to fairly-valued now, by conventional valuation measures. Maybe still a little overpriced, but you can't call the exact bottom.

I'm waiting to put money in because I don't yet have a job, and so may need that cash to fund another startup (there's that luck aspect again; had I not been starting a startup last year, I likely would've had way more in the market). But if I had a normal employment situation, I'd be gradually money into stocks, towards a more normal asset allocation.

As for a retirement 20 years out - I wouldn't even try to predict that. I haven't touched my Roth IRA this crisis, nor do I count it in overall returns (haven't even looked, really). The one thing I would say is to have some international exposure. Prices rise or fall based on how reality compares to the market's expectations, and I think it's unlikely that America in 20+ years will have the hegemonic position it does now.

Outlawing short-selling on 900 big stocks is making it hard, to y'know, hedge..

Yes and no. If I am not allowed to short IBM, I can get around it. I simply short the Dow and go long the other Dow components (that is, excluding IBM). The transaction costs are not that large. Mostly, it's just a stupid rule that can be easily traded around.

I don't think that that's correct. I think that the 'short selling ban' banned actual short selling, and actions which had an equivalent effect. So your example of shorting the index and buying all the stocks except one would have fallen foul of the ban.

Andrew, I believe the short-selling "ban" was actually only on a bunch of financial firms. You could still have shorted the indices.

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