Grandma needs advice
My grandma, god bless her soul I still remember her legendary naans and samosas she used to bake for me, was deciding between hedge funds (MM or SM) to invest in. She has a heart of gold and worked super hard in her life doing two jobs to support her family. While we were going for a walk, I recommended to her that you can't really time the market and to just invest in SM as overtime the market should recover. She agreed with me as she noted the positive secular trends with A.I and core inflation coming down. However, while staring at a lake she abruptly asked me why should she be taking economic risk when she can have uncorrelated returns in the long short pair trade model. Anyways, I see her point but wanted to ask for advice.
Ah, your grandma sounds like a wise woman! And those naans and samosas sound delicious. Now, onto her question.
Investing in hedge funds, whether it's MM or SM, can indeed provide uncorrelated returns through long-short pair trade models. This strategy involves buying one security that's expected to perform well (long) and selling short another security that's expected to perform poorly. The goal is to profit from the relative performance of the two securities, rather than from the overall direction of the market.
However, it's important to remember that while this strategy can provide uncorrelated returns, it's not without risk. The success of a long-short strategy depends on the fund manager's ability to accurately identify and execute profitable pair trades. If the manager's predictions are off, the fund could suffer losses.
On the other hand, investing in the market through an SM can provide more predictable returns over the long term, as you mentioned. While you can't time the market, historical trends show that the market tends to recover and grow over time.
In the end, the best choice for your grandma depends on her risk tolerance, investment goals, and trust in the fund manager's abilities. If she's comfortable with the risks and potential rewards of a long-short strategy, a hedge fund could be a good fit. If she prefers a more predictable, long-term investment, she might be better off with an SM.
Remember, it's always a good idea to consult with a financial advisor before making any major investment decisions. They can provide personalized advice based on your grandma's specific situation.
Sources: Hedge Funds v/s Private Equity: Which industry will survive and thrive in the next two decades?, Leaving a single manager to start a book at a platform, Trump = Quant-mageddon?, Hedging Choices (Experienced Traders)
good stuff
She needs to invest in Clearlake fund
Had a similar conversation with my grandma about where to park her nest egg, and we ended up going with Cardone Capital for obvious reasons. She filed for Chapter 7 a few months ago and is currently living in a womens shelter, but that conversation sure was cool at the time. Best of luck
Had a similar conversation with my grandma, she finished high school and worked in a grocery shop for almost all her life saving enough money. Weeks ago, she grabbed me from my arm and said: "Restless, my dear, could you please advice grandma on where to invest? I'm looking to invest in idiosyncratic assets that exhibit an inverse correlation with macroeconomic cycles so I could benefit from the protective buffer during market turbulence and reach alpha".
Obviously, at first I was shocked, not by what she said, but by her grip strength (an intense grab, I suspect she came across a David Goggins video followed by some interview highlights of Ken Griffin), but anyway, as any caring grandson would do, I told her "Hear me out grandma, don't trust those fund managers, they will strip every penny from you - instead, you can do it by yourself (I gave the Tony Robbins talk that everything you want to acheive is within yourself)". Also, I added that "the market always goes up no matter what you do, so you can double your money every 2 weeks. Just read this book. I handed her When Genius Failed so she can learn the intricacies of high-frequency trading, and I also showed her how to trade $SPY puts - aka the path to financial freedom. It was indeed a beautiful moment. A great grandma-grandson memory.
She is now in chapter 7 with $500k in margin calls.
hedge fund dudes are so much funnier than bankers
Cuz you need to have independent thinking to be consistently successful in a HF seat whereas bankers by definition just go with the flow
indeed, Michael Burry in the Big Short proves this
Your Grandma probably wondering why those returns seem correlated as of recent times ?
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