About a year and a half ago, my banker at one of the top US banks gave me a call about investing in a hedge fund.
A hedge fund works like a mutual fund in that they aggregate shareholder funds and invest in a basket of stocks, calls, options and other financial instruments like notes and bonds.
The different is that a hedge fund engages in contrarian strategies, they “hedge” your investment which effectively limits your potential gain, but more importantly ensure that your investment doesn’t drop too much if the market weakens.
That’s the theory anyway.
So I was looking at the available hedge funds and rather than go for the “global equity” variety, which holds a basket of different stocks so that it approximately represents the global financial market, I took a look at the specialty funds.
I was leaning towards the resources and mining hedge fund (which invests in previous metals like gold, silver, platinum and in stocks involved in the mining industry (oil, coal, gas, iron, etc). Kinda a proxy for raw materials.
The banker gave a strong case for investing in the financials and FX fund which would go into banking related and finance related stocks.
I went into the financial and FX fund.
Fast forward about a year and a half, the US dollar has weakened considerably against the other foreign currencies. The sub-prime mortgage situation has destroyed the home loan market for many of the smaller banks, and some of the bigger banks are wobbling on their feet.
Meanwhile, gold prices are going gangbusters, the price of gas has just about doubled in many countries, including Singapore.
My holdings in the financial and FX fund has risen about 9% (were it not for the hedging strategy I guess it could very well have dropped 20-30%).
Meanwhile, the metals and resources fund is up at least 17%.
So, am I upset with my banker?
A little. But then on hindsight, with investment, it’s really not something you should dabble in, unless you have the stomach for balancing your potential gain with the risk you’ll be taking on.
Investment requires watching global trends like a weakening US dollar, seeing the leading signs of the sub-prime mortgage situation and taking appropriate action.
So that’s financial investment.
On the other hand if you’re running a brick-and-mortar business, or an online internet marketing business, your destiny is firmly in your hands.
You will still need to watch global trends, but whether you survive and thrive, or crash and burn is very much dependent on what you do and how you do it.
If investing a couple of hours a week into improving your knowledge and skills and more importantly, taking consistent action means you grow your finances at 30-50%, would you do it?
Granted, it’s going to be more active and require hands-on effort, rather than making that one phone call and filling in a bunch of investment forms.
But when you look at what’s at stake, isn’t it worth it?
2008 has just started, and it’s time to move up to the next level.