Are hedge funds bad? | Finance & Capital Markets | Khan Academy

Thinking about how hedge funds are different from other institutions. Created by Sal Khan.
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Finance and capital markets on Khan Academy: Hedge funds have absolutely nothing to do with shrubbery. Their name comes from the fact that early hedge funds (and some current ones) tried to "hedge" their exposure to the market (so they could, in theory, do well in an "up" or "down" market as long as they were good at picking the good companies). Today, hedge funds represent a huge class investment funds. They are far less regulated than, say, mutual funds. In exchange for this, they aren't allowed to market or take investments from "unsophisticated" investors. Some use their flexibility to mitigate risk, other use it to amplify it.
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[@fleshcookie]

It was fun watching Sal talk about this. You can hear some passion in his voice, and see some of his real expertise in this field come through (as he worked for a hedge fund prior to Khan Academy). Not that he isn't passionate and very knowledgeable at like.. everything else, you could tell this was a little closer to his heart.

[@michealhoffstater9810]

"The bigger they are, the harder they shall fall" When the big people topple, let them hit the floor.

[@korento3000]

Best explanation of hedge funds I have found on KZbin!

[@MrNotMine]

Thanks for this series.

[@Ferrus91]

The other major criticism has been that especially large hedge funds have manipulated commodity markets (oil and cocoa) through speculation, which has been a bone of contention among some economists recently - primarily dismissive of the idea although not universally. Although again this isn't a phenomenon unique to hedge funds.

[@slightlygruff]

Sal is protecting the Hedge Funds, this is Helsinki syndrom. He used to be an analyst in one of them. That's so cute!!)))

[@ColtraneDavis]

Thanks!

[@modingity]

Let them fail. Some entrepreneur will pick up the pieces and make things whole. That is what capitalism is supposed to be about. Bailouts just incentivizes extreme risk! Why should anyone take precautions when you know you will be balled out if you fail? The moral hazard of bailing out LTC showed wall street that they would be saved, no matter what! And look what happened!

[@hier0phant336]

Thanks

[@mahardika-1048]

I know it's an old video. I hope someone unswer my question. What if one of the limited partner decide to add more fund after the fund is invested to several stock or other instrument for for 3 years let's say. Isn't that makes the other party indirectly exposed to cash or sell some of the old position that let say up 30% already. Correct me if im wrong. Thank you

[@jimsby477]

2:25 lol it happened

[@HedgeFundGroup]

I agree that almost every piece in the press about hedge funds being greedy, fraudulent, or ruthless...the news organizations do not really focus on the fact that this is one of the few bright spots of growth in our economy. On the one hand they talk about doom and gloom of how manufacturing is down and large companies are laying off employees...but once they find an area that is making money those professionals are often demonized. Nice video! - Richard Wilson Hedge Fund Group

[@teenspirit1]

So this is where institute of trading got their information from.

[@KoalaBearWarrior]

Thanks for making this. My dream is to run my own hedge fund one day.

[@ImranH59]

Does your dream come true?

[@logknot7867]

KoalaBearWarrior did it come true ?

[@thatguy8628]

We need answers!!

[@rambo3870]

ANSWER

[@georgebrian2453]

Did it come true ??

[@kepstein8888]

If some hedge funds are less risky like mutual funds, why not just invest in a mutual fund and have the oversight and transparency?

[@teenspirit1]

Hedge fund managers grow with the capital, so they want to make you money and in return make themselves money. Mutual funds just pick some standard low risk assets and don't care about the downside.

[@KoalaBearWarrior]

@EternalIntelligence Neat. I'm 22. How about you?

[@EternalIntelligence]

@KoalaBearWarrior me too. how old are u

[@VickiBee]

My FRIEND sure thinks they're bad. She went into a fully roughed out and total tirade when she found out her husband put all of their savings into one instead of keeping it for their daughter's college fund. He told that the hedge fund was FOR that, but she didn't want to hear it at all. She's in a fully steeped state of anguish. I told her to ask him to show her the money. They have to notate it don't they? You have to TRACK money somehow don't you. She's too upset to listen.

[@alvachan88]

i know people generally don't reply to 5 year old comments but for this one, it makes sense since you are supposed to look at the result of an investment years if not decades later. so how did it go? did her poor person mentality force her husband to take the money out right after the lock up period? did she leave the money in a good fund and is now having more options in her life? was the fund a bad one and she lost almost all her money? really curious to know cause this is like a long term experiment where you track the subject over years to see if big impacts result from seemingly insignificant decisions.

[@JC-qq9sw]

So hedge fund managers belong on r/wallstreetbets

[@blessedspear2642]

How does this guy know everything

[@wedeldylan]

He worked at a hedge fund and the rest of his content is mostly at a middle and high school level

[@bh251cc]

Gamestonk

[@VickiBee]

My friend who works with them says they AREN'T always bad but they're usually risky. He said he liked Futures trading better than hedge funds but it so happens when he was doing THAT it practically got him killed. He worked at the World Trade Center and all of his colleagues died that day. The only reason he didn't die is that he refused to listen to Port Authority when they said "Stay where you are, FDNY's coming to get you." He said "You stay where YOU are, I'm leaving now." The others didn't want to go searching. If they weren't already in danger - and they weren't at first - they didn't want to go looking and inadvertently find danger. Which he found too. Only stupid luck saved him but he was burned over 60% of his body surface.

[@VickiBee]

+Vicki Bee Of course I was partly wrong about this. Two of his co-workers went looking with him (but he didn't tell me that then.) They were married to each other and one was pregnant, that's why she didn't want to stay there and just let whatever's going to occur happen to their baby, so they all three went looking but he separated from those two for a while and that's the last time he saw them. She needed to stop bc she thought she was having pain.

[@seanbarilari]

wrong video m8

[@InstTaxSolutionsLLC]

I don't think it's really whether hedge funds are bad. There are both positive and negative points to them just as there are most anything else.

[@sketchin1009]

Wallstreetbets

[@Chnamanjx]

@Manodragon The World Economy today. in order for the average person to live a normal, stable life (house, food, education, healthcare), the rate at which resources get turned to garbage must constantly ACCELERATE or the entire system collapses and people become homeless. Fucking sick. But that's how the monetary and economic system works right now. This is all because of people expecting a 5% interest from their investments and bonds.

[@stanislavberezin6307]

i reckon it would be cool to have a company that is too big to fail, basically you just absorbed everything in pieces, you can live freely and your kids can do so. Its not like a monopoly but something is the same there

[@adrianhutabarat1736]

Stanislav Berezin Amazing, every single word of what you just said was wrong.

[@MrNetsecure]

lol whos here after buying game stonk

[@danielesquivel8936]

didnt buy. not suicidal with my money.

[@danielesquivel8936]

@@itsjohnsonjackson good. any many many others (not from hedgefunds) have already lost thousands. just even today.

[@patbateman2088]

I appreciate the unbiased argument, however... Hedge fund managers receive QUARTERLY profits on the investments. The clear problem with this is that investments are not traditionally supposed to give you immediate returns. Real investments are about looking into medium to long term future, not in the next three months. So the fund manager will usually have very different interests to what's best for the clients.

[@LunaticTheCat]

As long as CEO bonuses are being tied to the stock price we are going to have a very turbulent and wasteful society.

[@theokpianocoverguy]

What about how hedge funds contribute to wealth inequality? They are for the global elite. However, presumably they invest money on projects in the real economy... Thoughts, Sal?

[@scottab140]

Wealthy inequality is an oxymoron, as only people who have over $25 million are considered wealthy. You probably wealth class income inequality but Hedge Funds are the largest group involved in philanthropy, as they make the most money, so they help out the lower class by donating billions of dollars over their career to charitable group and worthy causes..

[@theokpianocoverguy]

scottab140 Yep I meant income inequality I suppose... The question is whether hedge funds predominately circulate money between the super rich or whether the wealth trickles down to the rest of us. Charitable donations are one thing, but how much do they invest in projects in the real economy, thereby helping all of us?

[@scottab140]

theokpianocoverguy Investing in Charitable organizations and setting up non-for- profit organization do help all.

[@stanalpha731]

+theokpianocoverguy wealth inequality is a politically useful statistic for socialist academics and politicians - but otherwise it illuminates nothing except for nominal differences. fact is that economic growth under capitalism has meant that 'poverty' or being poor no longer means starving to death, dying in the cold etc, but it means u might still have a car, certainly have phones shoes and tvs and refrigerators. The difference in living between rich and poor has never been smaller; and the difference in nominal wealth has never been bigger - but obviously the second difference shows nothing while the first one shows progress - and if progress is the aim, we should dispense with wealth inequality rabble rousing and look at standards of living

[@CM_Burns]

mutual fund = poor man's hedge fund.

[@alexanderchenf1]

Forget about numbers. Can you just define conceptually WHAT IS hedge fund in one sentence? For example, insurance is: Every buyer pay a little for possible unlucky events that may happen to them. And only a few buyers receive returns and huge returns when they actually get unlucky. So what is hedge fund? I have Amazon and Costco stocks. The natures of their businesses are the opposite (Costco primarily does in-store sales, and Amazon primarily does online sales). So usually when one stock goes up, the other stock goes down. Am I hedging? Isn’t that stupid because one end just offsets the other, which brings no difference except for the waste of time?

[@joshualane5181]

A hedge fund is a fund with the stated intention of generating a positive return independent of overall market conditions. The term gets thrown around a lot, perhaps wrongly, but this is a fairly agreed upon definition. By the way, your one sentence definition of insurance was two sentences long. I wouldn't call Costco and Amazon opposites - they are both consumer cyclicals that correlate with consumer spending rates. If you look it up you'll see they actually have a positive correlation. Obviously nobody is hedging to cancel out returns - you must think fund managers are all terribly stupid? Hedging is a very broad term that generally groups methods which allow one to better tailor investments to suit their risk profile. If, like you say, you wanted to use a share to hedge against another share, you could use a quantitative method to find a ratio of the two shares that would minimise volatility for a given return.

[@user-dn6ht6bo7r]

You should short the competitor and go long on the company you think will succeed. You have a lot of searching to do. Investopedia has good content.

[@by6567]

Are hedge funds GOING bad? 💎💎💎💎💎💎💎💎💎💎

[@crunchynutkiller]

Hedge funds are bad because 95% have done worse than US treasury bonds

[@AbrahamSalazar210]

Source? Oh wait... it's based on your own resentment against hedge funds.