HEDGING

From My Perspective - - -

In many areas and decisions one makes in life, there is an element of risk. It is a scary speculation to think (if the estimate is correct) that 1 in 5 drivers one passes in oncoming traffic is under the influence of “something”. The “risk” pertains to one’s consumption of some mood modifier; or they could be distracted by conversation with someone in the vehicle or on a Cell Phone; or there could be the all-too-frequent “Road Rage” factor present. Whether we like it or not, “Risk” is a real part of one’s way of life.

When it comes to finances and investments, this is a more controllable area of “risk management”! Before anyone makes an investment in anything, there is always a “Prospectus” available that defines the type investment and the risk factor(s). The safest investment is a fixed interest and federally insured (FDIC) saving instrument. Stocks and Stock Portfolios all can go down as well as up – thus – the Risk. There are too many “professionals” who are involved in Stock Market Investments. They have large amounts of funds and can influence the direction of a Stock Investment. They do so with the purchase of a “Call” (a determination of a price level the stock will reach on the upside) or a “Put” (an estimate of the possibility of a stock level on the downside). In other words, they “Hedge” their investment in the hope there will be a net gain versus a net loss! The Encyclopedia states: “hedge funds often seek to offset potential losses in the principal markets they invest in by hedging their investments using a variety of methods, most notably short selling. However, the term "hedge fund" has come to be applied to many funds that do not actually hedge their investments, and in particular to funds using short selling and other "hedging" methods to increase rather than reduce risk, with the expectation of increasing return. Hedge funds are typically open only to a limited range of professional or wealthy investors. This provides them with an exemption in many jurisdictions from regulations governing short selling, derivative contracts, leverage, fee structures and the liquidity of interests in the fund.” This is where the “risk” or “Gamble” is present. With computer models and a whole series of other strategies, a determination is reached in terms of Market Direction.

On the Website - www.investorwords.com – Hedge Funds are defined as: “A fund, usually used by wealthy individuals and institutions, which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. Hedge funds are exempt from many of the rules and regulations governing other mutual funds, which allows them to accomplish aggressive investing goals. They are restricted by law to no more than 100 investors per fund, and as a result most hedge funds set extremely high minimum investment amounts, ranging anywhere from $250,000 to over $1 million. As with traditional mutual funds, investors in hedge funds pay a management fee; however, hedge funds also collect a percentage of the profits (usually 20%).” On the website - http://useconomy.about.com/od/themarkets/f/hedge_funds.htm - The following is stated: “Thanks to this compensation structure, hedge fund managers are driven to achieve above market returns. Since they get zero no matter how much money they lose, they are also very risk tolerant. This makes the funds very risky for the investor, who can lose much more than zero.”

Consider these things with me - - On a personal level and due to the Litigious nature of our times, Insurance of different sorts (Life, Medical, Extended Care, Auto, Home, Counseling, Flood, Earthquake, etc.) are prudent choices and a practice of good stewardship. We have the cautionary instruction of Jesus Christ in the Sermon on the Mount (Matthew 6:19-21 NLT): “Don't store up treasures here on earth, where they can be eaten by moths and get rusty, and where thieves break in and steal. Store your treasures in heaven, where they will never become moth-eaten or rusty and where they will be safe from thieves. Wherever your treasure is, there your heart and thoughts will also be.” This teaching encourages focus upon the things that matter most! It does not forbid investment but does enjoin that one has personal priorities in perspective and order. Our God is still able to do immeasurably more than any of us can ask or imagine (Ephesians 3:20). He has proven to be trustworthy! Question: Is our trust in Him 100%?