If the market goes up, the good stocks should rise more than bad, so gains on the good stocks should exceed losses on the short sales. If the market falls, the bad stocks should fall more than the good, so gains on the short sales should exceed losses. But profitable short selling requires superhuman timing, and the inevitable mistakes can be super expensive.
In 1999 and 2000, a number of hedge funds collapsed because they shorted Internet stocks that went on to soar. The hedge-fund managers were “early rather than wrong”, as the saying goes, but they still lost huge sums. After all, short selling turns the traditional market odds upside down. When you buy, your profit potential is unlimited and the most you can lose is 100%. When you sell short, the most you can make is 100%, but your potential for loss is unlimited.
Fund companies are still eager to launch hedge funds, especially now that new rules make it easier to sell them to the public. Hedge funds, long associated in the public’s mind with reclusive offshore millionaires, are a prestige item. In addition, they’re hugely profitable for the sponsors, due to incentive fees-investors pay extra if the fund performs well. Brokers are also happy to sell the funds and earn commissions. In addition, hedge funds trade heavily, and they usually trade through brokerage firms that sell their fund to investors. It’s a common investment situation.
The fund makes money; the broker makes money; sometimes even the client makes money. Of course, some investors lose heavily, due to the fees and risks. But, as they say in the investment business, “two out of three ain’t bad”.
Our advice: stay out. Rather than invest in hedge funds, we think you should build a portfolio of high-quality, mostly dividend-paying stocks and follow our TSI Network three-part Successful Investor strategy:
Most investors who successfully build wealth over the long term follow certain investing practices. Find out what they are in our FREE investing guide, The 10 Best Practices of Successful Investors.
The Direxion iBillionaire Index ETF, $25.40, symbol IBLN on New York (Units outstanding: 1.4 million; Market cap: $35.6 million; www.direxioninvestments.com), is designed to profit from copying the moves of billionaire investors, such as Warren Buffett, Carl Icahn, Daniel Loeb and David Tepper.
The ETF began trading… Read More
Williams Cos., $44.04, symbol WMB on New York (Shares outstanding: 685.4 million; Market cap: $30.2 billion; co.williams.com), gathers, processes and transports natural gas throughout the U.S. It also provides gas-marketing services.
The long-term outlook for energy transporters like Williams is positive, due to rising demand for… Read More
Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you advice on the stock market and other investment topics that will help you develop a successful approach to investing… Read More
SHERRITT INTERNATIONAL (Toronto symbol S; www.sherritt.com) is a diversified natural resource company that produces nickel, cobalt, thermal coal, oil and gas. It also manages 356 megawatts of power generation capacity in Cuba, with an additional 150 megawatts starting up soon.
The company is a major nickel… Read More
FEDEX CORP. (New York symbol FDX; www.fedex.com) delivers packages and documents in the U.S. and over 220 other countries and territories.
The stock has moved up in the past few weeks, partly due to speculation that activist investment firm Pershing Square Capital Management will soon make… Read More
TIM HORTONS INC. (Toronto symbol THI; www.timhortons.com) is the largest fast-food company in Canada, with 3,453 outlets that mainly serve coffee and donuts. The company also has 808 U.S. stores.
The stock has moved up lately in response to demands from Highfields Capital Management, a U.S.-based… Read More
High short positions are no longer a particularly telling stock market indicator, since traders and hedge funds often combine a short sale with some other transaction in stock options. Rather than having to buy the stock back in the market, for instance, holders of a.. Read More
Dear Inner Circle member,
As you probably know, last week we singled out Teck Resources. $36.70, symbol TCK.B on Toronto (Shares outstanding: 586.0 million; Market cap: $21.5 billion; www.teck.com), as our #1 Stock for 2013 for The Successful Investor.
Our Stock of the Year has turned… Read More
No experienced, successful investor will be surprised at the suspicions that cling to hedge funds in the wake of repeated financial crises. When that much money floods into an investment area that fast, unpleasant financial events are bound to happen.
The huge investment attracts unscrupulous characters,… Read More
Mutual funds, index funds and exchange traded funds (ETFs) often engage in securities lending. That is, they lend securities to third-party borrowers, mostly hedge funds and investment firms, that mainly use them for short selling. The borrowers then sell the securities with the hope of… Read More
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' FREE Special Report from The Successful Investor.
How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
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This privacy policy is applicable to all TSI Network Visitors, Clients, Employees, Suppliers, Web sites, Management, and all other interested parties. Any links to or from our site are not covered by this policy. We encourage you to read the privacy policies of every site that you visit.
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We do not collect or disclose personal information, except when it is provided to us voluntarily by the site/store visitor with their consent.
We store subscriber and password files containing personal information securely. These files are stored in secure areas that are not accessible to the general public. We are always working to ensure the security of your personal information.
We are continuously in the process of improving our sites and services. If any new features or policies require a change to this current policy, we will post a clear notice of this change on pages of our site where the privacy policy appears. The principle behind this privacy policy is to collect information with your knowledge and consent.
What personal information do we collect?
The information we receive from customers helps us personalize and continually improve your online experience at TSI Network. TSI Network may collect personal information online for all legal purposes, which include, but are not limited to:
Information You Give Us: We receive and store any information you enter on our website or give us in any other way through sign-up forms or ordering forms for publications and services. You can choose not to provide certain information, but then you might not be able to take advantage of many of our services and features. We use the information that you provide for such purposes as responding to your requests, customizing your web browsing experience for you, improving our website, and communicating with you.
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We do reserve the right, however, to collect and perform statistical analyses of the internet traffic to our website for our internal use. However, information collected does not allow us to identify any individual, and will not collect any personal information of the visitor. Furthermore, we do not sell, rent or loan to any outside parties the information collected and analyzed.
Although you may be able to access some of our websites without being required to register or provide personal information, certain websites and sections of our websites may require registration. In addition, if you choose to contact us to ask a question, we will collect your personal information so that we can respond to your question.
To make the visitor’s experience on our website easier, we may use per-session “cookies” (session identifiers) to track the state of the visitor session. This “cookie” is destroyed when your session with our website is over.
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Does TSI Network Use the Information It Receives?
"Contact Us" and Comment Features: TSI Network encourages visitors to its websites to contact us with questions and comments. Email addresses and other information of persons using these features may be collected in order to facilitate our responses to those inquiries.
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Except as provided herein, TSI Network will not sell or rent personal information about you to unaffiliated third parties.
We may disclose personal information you have provided through our websites, for the above purposes, to persons or companies that we retain to carry out and other activities for which you have registered or in which you have otherwise asked to participate. In particular, we may for these purposes transfer information to any country (including the USA and other countries which may not offer the same level of data protection as Canada). We also will disclose personal information if required by law, including compliance with warrants, subpoenas or other legal processes.
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TSI Network does everything possible to prevent unauthorized intrusion to its websites and the alteration, acquisition or misuse of personal information by unauthorized persons. Notably passwords submitted by users of our websites are encrypted using encryption mechanisms. However, TSI Network cautions visitors to its websites that no network, including the Internet, is entirely secure. Accordingly, we cannot be responsible for loss, corruption or unauthorized acquisition of personal information provided to our websites, or for any damages resulting from such loss, corruption or unauthorized acquisition.
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TSI Network has procedures in place to keep your personal information accurate, complete and current for the purposes for which it is collected and used. You may review the information that you have provided to us and where appropriate you may request that it be corrected. If you wish to review your personal information please send a request to: service@tsinetwork.ca.
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What Choices Do I Have?
Changes to this Policy
This Policy is the sole authorized statement of TSI Network's practices with respect to the collection of personal information through TSI Network's websites and the subsequent use and disclosure of such information. Any summaries of this Policy generated by third party software or otherwise (for example, in connection with the "Platform for Privacy Preferences" or "P3P") shall have no legal effect, are in no way binding upon TSI Network, shall not be relied upon in substitute for this Policy, and neither supersede nor modify this Policy.
TSI Network may revise this Policy from time to time.
Legal Notices and Disclaimers
The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
Information presented on this web site or contained in our publications is not an offer, nor a solicitation, to buy or sell any securities referred to on the web site or in the publications. The material is general information intended for recipients who understand the risks associated with an investment in any securities referred to in the publications or on this web site. The Successful Investor has made no determination regarding whether an investment, course of action, or associated risks are suitable for the recipient.
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