The book makes a statement which would surprise most investors, who think these huge mysterious funds make money - here it is:
"Shocking but true: if all the money that's ever been invested in hedge funds had been in treasury bills, the results would have been twice as good"
What Forex traders can learn from the book is of course the history of hedge funds, how they operate and how they pile up huge fees as investors lose money and this to be fair is true of managed funds in general and not just related to hedge funds. What you can really learn from the book is - the world of investing never changes funds lose money and the best way to make money trading is to trade for yourself.
One of my beliefs has always been, investors fall for the professional fund managers, being able to make money for clients when they quite clearly don't and here is another great quote from the author:
Commissions for the Funds - Losses for the Clients
"While the hedge fund industry has generated fabulous wealth and created many fortunes, it has largely done so for itself." (Simon Lack)
The author makes assumptions on the fees, hedge funds make and compares it to the profits that investors made. The fees for the funds from 1998-2010 totalled $440 billion against just $9 billion for the investors. when adjustments are made to the figures in terms of survivor-ship bias, the author calculates, investors actually lost $308 billion in hedge funds against industry fees of $324 billion!
The funds tended to make money in the early days and the most famous was the Quantum fund which made a huge killing trading the British Pound short and many still think of this event and assume Hedge funds are piling up big gains for clients but as we have just seen this is not the reality.
Hedge Fund Strategies
Many new traders, are in awe of these funds and believe they have complicated tools and strategies which help them beat the market but as we have always stressed Forex trading or any trading, only requires a simple method which trades long term. Complex methods are used by hedge funds but they don't help, to make the funds or investors money - they simply help generate commissions.
If there is one thing all traders should learn about investing it's - trading to much will help you lose money and complex strategies don't work.
These funds are often unregulated, quote performance figures and projections of growth which are not true and are geared towards commission generation, rather than client profits but the author does give some pointers, on how to find a good one but after reading this book, I think I would steer well clear of them!
Comments on The Hedge Fund Mirage
"Simon Lack, a hedge fund veteran exposes some unforeseen and uncomfortable truths about the industry in his new book." (Hedge Fund Net)
"...a cautionary tale from one who knows just about all the tricks...an easy, largely fun and certainly instructive read" (Financial World)
"Devastating little book.... His conclusions will make uncomfortable reading for many self-styled 'masters of the universe'.... This book should be required reading for pension fund trustees." (Jonathan Ford, Financial Times)
Our View
Is the book essential reading for traders? Not really, unless your in the industry, want to invest in a fund or have a greater knowledge of these funds. I think the real value of this book is in the quote we started this article with:
"Shocking but true: if all the money that's ever been invested in hedge funds had been in treasury bills, the results would have been twice as good"
Why? Because it just shows you, that you can do better on your own. In addition, many traders feel intimidated about trading markets because they feel the so called professional traders can do better but this book dispels the myth.
