Hedge Fund Investment Mistakes

Top 4 Hedge Fund Investment Mistakes

There are many good and bad reasons to invest in hedge funds. Below are 4 of the most common hedge fund investment mistakes that I see or hear talked about by hedge fund managers, family offices and financial advisors. Each of these points are cautions on not any form of financial advice or recommendation recommendations on investing with any particular hedge fund strategy.

Investing based on emotions, market heights and excitement. Investing based on a hunch or short term trend can help find new ideas or hedge fund managers with unique perspectives but without thorough due diligence can lead to working with sub-par managers.
Chasing high returns. Many un-experienced Investors don’t ask themselves often enough – at what risk were those returns gained? What risks am I comfortable in taking on? Etc. This is why a wealth management firm or family office or consultant can be critical to making sure you are making wise investment choices for your unique situation, goals and needs.
Investing with friends – Many times you may not see the forest while being asked for money from a friend. The truth is that many hedge funds do not survive in the long-term. They are not asking to borrow a book, this is your hard earned money. If you can’t afford to lose the money you might not want to invest it in a hedge fund or at least a friend’s hedge fund at all.
"Hedge Fund Rich" – Thinking that a single – all eggs in one basket bet is going to make you rich. This rarely happens, the average hedge fund does beat the S&P but is far from returning the types of returns you sometimes read about in the papers. The most popular mainstream media outlets like to focus on the extreme because it sells newspapers, it draws eye balls. Most hedge fund managers are not frauds and most do not return 56% returns for their investors. Make sure and conduct industry-wide research from Databases and not just WSJ articles and coffee table talk with friends. Thorough due diligence and hard numbers trump all opinions.

- Richard

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