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With regard to your first sentence, could you give an example of a specific way to hedge capital? I'm not sure I understand.
by pshc 10y ago
With regard to your first sentence, could you give an example of a specific way to hedge capital? I'm not sure I understand.
- gizmo 10y agoSuppose you're a business with a lot of positive cash flow, but you also have a lot of exposure to the USD-MXN exchange rate. Maybe you have factories in Mexico but sell to the US, it doesn't matter. In that case you can pay a hedge fund to hedge your money so that if the exchange rate collapses you make enough money on the stock market to compensate, so your business will survive until the exchange rate climbs back. Most businesses have very high exposure to one section of the market, so wanting to hedge is natural. If your business makes toilet paper you have it easy because no matter what happens demand for your product won't collapse overnight. If you make cars then economic recessions are scary because new car sales will drop like a brick, and you need to hedge.
- lotsofpulp 10y ago>If your business makes toilet paper you have it easy because no matter what happens demand for your product won't collapse overnight. Until people figure out the magic of bidets! https://www.amazon.com/Luxe-Bidet-Neo-120-Non-Electric/dp/B00A0RHSJO https://www.amazon.com/Luxe-Bidet-Neo-120-Non-Electric/dp/B0...
- mrfusion 10y agoYou still need some paper right?
- stagbeetle 10y agoThey have a built-in dryer.
- loeg 10y agoAn order of magnitude less, I think.
- pg314 10y agoMost hedge funds have very little to do with the kind of hedging you describe. If you had that kind of exposure to currency risks, you wouldn't go to a hedge fund. You can easily hedge that risk yourself with futures or options. If you wanted to pay somebody for it, you would go to your banker and he would do it for you for a fraction of the 2/20 fees charged by hedge funds.
- gizmo 10y agoThe average banker has no idea how to hedge any serious amount of money, nor does the average banker understand what kind of hedging strategy is appropriate for a business. Nothing about hedging with futures or options is easy. Also, hedge funds don't charge 2/20 anymore like in the good old days.
- tptacek 10y agoAccording to the Shareholder's Letter, the 5 funds of funds in the bet portfolio were comprised of funds that largely did charge 2/20, with the fund-of-fund charging an addition 1% plus performance on top of that.
- gizmo 10y agoHedge fund fees have been in a steady decline. > The notion that hedge funds all collect a stereotypical management fee of 2 percent and a performance fee of 20 percent has been dying a slow death in recent years, especially for smaller, newer funds. https://www.bloomberg.com/view/articles/2015-10-27/hedge-fund-performance-fees-are-shrinking https://www.bloomberg.com/view/articles/2015-10-27/hedge-fun... Buffet's bet went into effect in January of 2008, so before the crash.
- tptacek 10y agoIf you re-read the letter, you'll see it ran through the entire crash, and hasn't ended yet.
- pg314 10y ago> If you make cars then economic recessions are scary because new car sales will drop like a brick, and you need to hedge. That sounds like a dubious claim to me. Can you name one car maker who hedges their exposure to economic recessions like you describe?