Do you know what a hedge fund is? It is a pool of money guided by a great super genius to make stupendous profits for those fortunate enough to invest in it.
These entities were originally called hedge funds because they did not just make money if the stock market rose. No. They were arranged to “hedge” their investors’ bets by selling short (of which much more to come), by dispersing investments in all sorts of different instruments beyond stocks (more to come on this, too), and by other brilliant devices.
These came into great prominence in the 1960s on Wall Street when Wall Street “hit a wall,” so to speak and money just going long was hard to get. Some hedge fund managers made immense profits—for a while—by buying into early stock offerings that were not open to purchase by ordinary investors. When the companies offering these insiders cheap, early stock went public and the stock price soared, as it occasionally did, immense profits were made by the hedge funds.
The hedge fund managers also thought of other innovations, especially in how they billed. Because they were able to convince investors that they, the hedge fund managers, had both special expertise and special insider connections that were guaranteed to make money beyond what ordinary brokers or mutual funds could make, the hedge fund managers were able to charge exceptionally high, some might say, astonishing fees.
A normal index fund today might put you into an index for ...