When the price goes up, the yield goes down… that’s fixed-income-investing 101. It’s the first thing you learn when studying the bond market. For some, it takes time to figure out why, but at some point it just clicks and makes sense.
Making sense of the equity and fixed-income markets these days takes a lot more work than that. The constant downward volatility is wreaking havoc oninvestors with large and small portfolios alike. The problem for some is that they don’t know how to hedge; they don’t know how to do anything other than to make investments that profit solely when markets rise. Understanding how to make money when markets fall is a lot like understanding why the yield goes down when the price goes up. Many investors are not privy to this information. Sure, they can study, learn and figure it out, but when it comes to being able to invest in products that hedge, the opportunities are limited.
Now I am sure that some reader will email me to suggest that investors can use exchange-traded funds to hedge. That’s indeed true, but ETFs are not a solution; the solution is hedge funds for the masses. Right now, however, hedge fund investors are limited to those who meet asset tests. They are not required to be smart, just rich. Money, and lots of it, is what Congress and the powers-that-be in Washington believe is the only criterion for being able to invest in hedge funds.
I think this is wrong. I think investors should decide what they want to do with their own money – not Congress. Over the next few months as election season heats up, there is potential for a great debate to begin over how to fix the economy. One of the things that should be discussed is investor equality.
On Wednesday at 10 a.m., the sixth season ofHEDGEAnswers kicks off with our Launch Session. The discussion will be brisk, the commentary insightful. I hope you join us and get in on the discussion. Register now byclicking here.