Hedge Funds: Only for Fancy People?

Hedge Funds, Hedging the market. What does it all mean? Can I do it myself? How to I get there? All those things are answered in this episode. 

It is not always easy to conceptualize some of these when you feel like you cannot immediately get started, but it certainly helps form your goals on what to shoot for. Thanks for being here!

Transcript

Chris Holling: 0:00

This is the truth about investing back to basics podcast where we want to help you take control of your personal finance and long term investments. If you're looking for a way to learn the why and how of investing, then you found the right place. Thank you for taking the time to learn how to better yourselves. I guess we should record. Yes. Welcome back, ladies and gentlemen, to another episode of truth about investing back to basics. My name is Chris Holling.

Sean Cooper: 0:37

And I'm Sean Cooper.

Chris Holling: 0:39

Today, we are going to move back out of the stretch of asking me questions because Well, I I just don't know enough. We were getting back into the into the void the pond. That is stuff that I still don't understand. So I, you know, when when we, when we need to get back onto the term about the different intricacies between, you know, root beer and Sarsaparilla, or, or whether or not a hot dog is a sandwich, then, you know, I think I think I'm your guy. But until then, I think we gotta go back to me asking you questions.

Sean Cooper: 1:24

Well first off, I think the whole concept of root beer versus sarsaparilla really depends on if you're talking about rootbeer versus traditional sarsaparilla, or what we con call today as sarsaparilla.

Chris Holling: 1:38

You know, I don't even know that I I haven't even looked into that. I don't know the answer to that. But I do know

Sean Cooper: 1:46

You can't find traditional sarsaparilla anymore, because I think you'd get all sorts of lawsuits for letting someone consume in this day and age, but

Chris Holling: 1:56

does it have cocaine in it.

Sean Cooper: 1:57

I don't think it was cocaine, but it wasn't, wasn't good for you.

Chris Holling: 2:01

Can I say cocaine? I could say cocaine,

Sean Cooper: 2:04

but now it is more like root beer, that's for sure.

Chris Holling: 2:08

Well, I can tell you today, the main difference is there's more wintergreen in sarsaparilla than in the root beer, so it has a very wintergreeny taste. It's likely to be sarsaparilla

Sean Cooper: 2:22

probably explains why I like some sarsaparilla better than most rootbeer

Chris Holling: 2:28

There you go. That that'll do it. Yeah. Yeah. See? Learning Yeah, you don't you don't have any more questions for me even though I didn't even answer the one question you asked me. Okay, today we are going to talk about hedge funds. Parentheses accredited investors. Do I I think I think accredited investors

Sean Cooper: 2:59

define the hedge fund first, define do your definition of the hedge fund first, we'll get to accredited investors down the road. And we've actually talked about them before too

Chris Holling: 3:10

I think a hedge fund is is that you pull out you pull out that hedge trimmer and you go out and then yet you make your bushes all cube like because because you live in The Stepford Wives land. And then after you trim it, and you throw the excess into a black trash bag, and then that's, that's your that's your available hedge or your hedge funds within a compiled sack.

Sean Cooper: 3:41

You know what that made me think of?

Chris Holling: 3:43

What,

Sean Cooper: 3:44

have you ever read the ultimate Hitchhiker's Guide to the Galaxy?

Chris Holling: 3:48

Yes, I have.

Sean Cooper: 3:49

Yeah, you know, I can't remember which book it is. But it's one of the later books and the people I believe it's when he comes back to Earth and the people have basically regressed and they have started using leaves as currency. And so they're all walking around with just like, tons of leaves in their, you know, packed in their shirts and their trousers because and, you know, they have horrible inflation because there's so much currency available and yeah, anyway, that's, that's what that made me think of.

Chris Holling: 4:28

It's, it's that's just I'd say that's only like, one more generation past the Idiocracy stage. The

Sean Cooper: 4:37

yeah

Chris Holling: 4:38

Brondo the thirst mutilator Yeah, has it has electrolytes in it. Like you should be watering your crops with, with water. What Not, not Brondo it's got electrolytes in it. No, I know. You should be using water You mean like, like from the toilet that's groes. Okay, yeah, well, we're we're doing we're doing well here so far.

Sean Cooper: 5:07

Suffice it to say, that's not what a hedge fund is,

Chris Holling: 5:10

shows what, you know, you just don't you just don't trim enough hedges?

Sean Cooper: 5:14

Apparently not. Apparently not

Chris Holling: 5:17

tell me, okay? No, okay, if I'm gonna, I'm gonna actually guess a hedge to me are, and I'm kind of piecing together some some stuff I've been learning lately. So here we go. You can utilize alternative investments, like perhaps gold or silver, and utilize it as a hedge in the market, if you somehow miraculously knew that there was going to be a big crash tomorrow, that you might want to have some gold or silver or some other form of a hedge to try and offset some of that. And so I believe a hedge fund would be funds that that are of the same, the cut of the same cloth, but not outright, just simple precious metals. And so it's a it's a fund and the fund is managed by hedge fund managers. And, and they are the ones that in fact, say, Yes, you should invest in leaves, because leaves will become currency.

Sean Cooper: 6:37

Know, you

Chris Holling: 6:37

How's that

Sean Cooper: 6:38

you actually touched on a number of the concepts around hedge funds. I won't say that, yes,

Chris Holling: 6:43

leaves

Sean Cooper: 6:43

necessarily defined it, but you definitely touched on some of the concepts.

Chris Holling: 6:48

Well, good. Okay. See, I'm kind of with it.

Sean Cooper: 6:50

Yeah. No, you pieced it together decently

Chris Holling: 6:52

tell me tell me more.

Sean Cooper: 6:54

So traditionally, yes, hedge funds were more or less what they sounded like they were investments, funds designed and managed to hedge your traditional market risk, or hedge some sort of a specific risk today that they're they're much broader than that they're not necessarily hedging anything, depending on the hedge fund that you're investing in? And what we refer to as hedge. You know, we should probably define that a little bit, you know, you've probably heard the phrase hedge your bets.

Chris Holling: 7:32

Yes, I have.

Sean Cooper: 7:33

Yeah,

Chris Holling: 7:34

actually, like it to me. I do know stuff.

Sean Cooper: 7:36

Yeah, so you know about cards, then.

Chris Holling: 7:39

Yeah,

Sean Cooper: 7:40

No necessarily about investing. But sure. Anyway, um, no, but so in in the investing realm, to give you an example of what it would look like to hedge your investments. So let's say for example, you have purchased a stock. And again, I'm gonna reference a future here, because this is one of the concepts that we haven't delved into yet. But one of the things you could do to hedge that investment risk, because you've bought into this stock, you bought it bought into the company, if that company, something horrible happens to it, or they go bankrupt, or there's just some really bad negative news and they lose tons of value, you lose your shirt on your investment. A way to hedge that so reduce the risk. So you're hedging your risk would be to buy a put. So a put is an option, it gives you the option to sell a set number of securities at a set price. So for example, let's say you own a stock that's currently trading at $55 a share, you buy an out of the money put at $50 a share, that gives you the option to sell at for $50. So if that stock were to tumble, it drops down to $30, then you would exercise that put, and you would actually sell the stock at $50 a share even though it's only valued at $30 a share. So that was your your hedge. The limiting factor why you wouldn't necessarily do this all the time is because it cost money to buy that put that option. And yeah.

Chris Holling: 9:27

So that was that was just a big realization, because that's exactly what I was thinking. I was like, Why? Why wouldn't you do that?

Sean Cooper: 9:33

Right

Chris Holling: 9:33

Like, why wouldn't you just set limits on everything all the time?

Sean Cooper: 9:37

Because it costs money,

Chris Holling: 9:38

okay,

Sean Cooper: 9:38

yep. It's gonna reduce your, your overall profitability, potentially

Chris Holling: 9:42

got it,

Sean Cooper: 9:42

but it can reduce your risk and that's what a hedge is, is a way to reduce risk in this scenario. So traditionally, that's what a hedge fund refers to is some means of hedging, or reducing your your risk or offsetting your risk in one way or another. Today, that's not necessarily what the hedge fund is doing, depending on what you're investing in. Technically speaking, today, if somebody refers to a hedge fund, really, they're most likely just referring to something that is not a 40 act fund. So something that's not registered under the Investment Company Act of 1940, like a mutual fund or would be. So, it's become much broader than what the traditional sense of hedge fund would be. Now, because it's not registered. It's it's not subject to the same rules as a 40 act fund, there are fewer restrictions on what they can do more perceived risk associated with it. And so only accredited investors can invest in hedge funds. Now, there, there are some loopholes in that, but for the most part, only accredited investors can invest in hedge funds, with the notion being that they either have more knowledge of the investments or are in a financial position to take on that additional risk. Whereas the average Joe investor is not allowed to invest in those because they're not falling under the same rules and restrictions and guidance and all of that, that a 40 act fund would be. And

Chris Holling: 11:29

so

Sean Cooper: 11:29

go ahead,

Chris Holling: 11:30

and I'm, so you, being an accredited investor can do that.

Sean Cooper: 11:36

Right. So I would be considered an accredited investor because of my designations. And and what I do, yeah. Okay. Traditionally, for most people, accredited investor has more to do with assets, and income. So you have to have a net worth of a million dollars or more, or you have to have had an income that exceeds 200,000 a year as an individual 300,000 a year as a joint filer for at least the prior two years, with reasonable expectations of making that much or more in the future. So either one of those categories would allow you to,

Chris Holling: 12:20

I'm really close on this one.

Sean Cooper: 12:22

Yeah.

Chris Holling: 12:26

Okay,

Sean Cooper: 12:27

so, but that's how you are able to invest. That's how you qualify as an accredited investor, and would allow you to invest in a hedge fund. Now, though, that's not the only restriction though, because most hedge fund have very high minimum investments. And what I mean by that is, on the low end, you're typically looking at a minimum investment of say, like,$100,000.

Chris Holling: 12:52

Oh, wow. Okay.

Sean Cooper: 12:52

So if you're looking at a portfolio, and you're saying, Oh, I'd like to put, you know, five, maybe 10% into this hedge fund, five, or 10%, if that's $100,000, you're looking at a portfolio of at least a million, probably $2 million.

Chris Holling: 13:08

Wow.

Sean Cooper: 13:08

And some of these hedge funds have minimums of 250,000, or maybe even a million dollars. So you really do have to have some fairly substantial funds to be able to invest in them unless you're putting in a very concentrated position. I mean, if

Chris Holling: 13:21

so,

Sean Cooper: 13:22

go ahead

Chris Holling: 13:22

at the risk of sounding ignorant, and, and kind of when you said a net worth, but then you also said that there might be a certain amount that needs to get applied into it does that? Does that include, like net worth, maybe I didn't understand that. But like, say, say you have the million dollars in your net worth because you have some properties? Does that mean that you could invest with that, or you're saying that you need the 250,000 in cash? To do so. I like I think I understood it, but like, where's the separation happened between those?

Sean Cooper: 14:03

Right? So you're talking about two different hurdles. Number one would be the accredited investor hurdle actually qualifying as an accredited investor and having that million dollars net worth, which by the way excludes your primary residence. So you can't count your your primary residence in that

Chris Holling: 14:19

okay? Sure that makes sense.

Sean Cooper: 14:20

Factor. But the second would be their minimum investment. So if you have a bunch of money, if you have a net worth of, you know, million or even a couple million, but it's all tied up in real estate, unless you're talking about doing some kind it wouldn't necessarily be a 1031 exchange. I can't remember the exact exchange that it would be, but unless you're looking at doing an exchange where you basically exchange the the real estate for the investment, you would need the you would need to have liquidity you would have to actually generate the cash to invest in the hedge fund because unless the hedge fund is investing in real estate specifically then you can't do any type of exchange there easily.

Chris Holling: 15:03

So that's actually kind of an interesting thing, because I don't I don't know that we've really touched on that before. And I'm familiar with it just with, you know, according to our last episode, where I clearly have been involved in real estate investing,

Sean Cooper: 15:14

yes.

Chris Holling: 15:16

Which is funny. It's weird to actually like, call myself a real estate investor now, like, I'm still not, it still feels, I feel I feel dirty when I say it. I just,

Sean Cooper: 15:25

I mean, if it makes you feel better, anybody who buys a house is technically a real estate investor, it's just a matter of what level you're becoming a real estate investor, you're taking it to a different level, because you are, in fact, doing the rental portion as well.

Chris Holling: 15:40

Right? That's, that's yes, I agree with it, I, you're totally gonna throw me off topic, don't

Sean Cooper: 15:46

sorry,

Chris Holling: 15:46

you stop that I've like squirrel brain here. So like, you got to know. Okay, so with the, the 1031 exchange how that works. And and I'm pretty sure I understand how it works out as a whole. So really correct me if I'm wrong on any of this. But the 1031 exchange works at where you, you sell a property of some sort that, really whether you're living in or not, and then there is a certain amount of capital gains, that happens usually through appreciation of some sort. And then at the end of the year, if you have that money in your pocket, then you are supposed to pay the or you will pay the capital gains tax that exists from being taxed on what your profit margin was from those capital gains of selling the property. Whereas a 1031 exchange, if you go through with that, then that is you take the capital gains, and then you put it into a I believe it's equal or above, but it's at least above in value or size property. And if you put it straight into that, then you do not get taxed on your capital gains in the process. Did I miss anything on that?

Sean Cooper: 17:00

Well, first off, I'm assuming you're not talking about primary residence.

Chris Holling: 17:03

Or it gets deferred, I'm sorry,

Sean Cooper: 17:04

assuming you're not talking about primary residence

Chris Holling: 17:05

No, I'm not talking about a primary residence,

Sean Cooper: 17:07

Because then you have your own set of rules that can allow you to bypass More

Chris Holling: 17:11

A townhouse that you own that's down the road, or less? Yeah, there are a number of and you sell it. And then if you pocket the difference in change from like, what you pay the mortgage company and whatever, restrictions in terms of timeframe like you have to and then that's it, then you're going to get taxed on that amount that went into your pocket. Whereas if you take that money, and then you purchase a three bed, two bath house, because it's larger than the townhome, also down the block, and you use that money in the course of the same year, then actually move the money within a certain window, you do not get taxed on that because you did a time if you do a 1031 exchange, then you do not get taxed on your capital gains, because you just immediately placed it back into the next property. Am I Am I describing that correctly? Right

Sean Cooper: 18:01

the new purchase has to be substantially similar. So you couldn't, for the most part, you couldn't take like a townhome and then buy raw land, they wouldn't view that as similar enough to qualify for the 1031 exchange.

Chris Holling: 18:18

Sure, but like a a home or like a townhouse and then into a duplex and especially a duplex into like a four Plex, like a multifamily doing multifamily. You should be able to use it for those though, correct?

Sean Cooper: 18:33

Yeah.

Chris Holling: 18:34

Okay. Okay. So as long as that's, that's established that that the the 1031 on side of that. So now that we know what a 1031 is, then you're saying that there's a variation of that, where it's not a 1031. But similar to that, where you can sell the property, and then your capital gains can get utilized to get placed into a an investment fund of some sort, through a different form, but then you're not getting taxed on the capital gains, as long as it's going straight into investing. Is that what you're saying?

Sean Cooper: 19:09

It would have to be a real estate investment of some sort.

Chris Holling: 19:14

Oh, okay. Okay. So of like, of like things?

Sean Cooper: 19:17

Yes.

Chris Holling: 19:17

To do so.

Sean Cooper: 19:18

Correct. Yeah, you couldn't say, exchange your townhome in this example or house or whatever, for a fund that's investing in futures contracts for wheat or whatever. Yeah, they wouldn't, they wouldn't allow that exchange.

Chris Holling: 19:43

Well, and I'm talking as a whole and not just the 1031 here now at this point. And you're saying that because you were saying there's something that's like a 1031 but it's not quite

Sean Cooper: 19:52

Yeah, I'm trying to remember the exact number for you.

Chris Holling: 19:58

But the purpose is, is it it was have to stay within the like of real estate in this.

Sean Cooper: 20:03

Yeah, we'd still have to be real estate. Yes.

Chris Holling: 20:05

Okay. That's That's mainly what I was curious about.

Sean Cooper: 20:08

Yep. Yep.

Chris Holling: 20:11

Cool. Okay. No that's good

Sean Cooper: 20:12

the other thing to be aware of there is with like the 1031 exchange, for example, you can continue doing it. So you can take your your real estate, sell it, use that money to buy another one, you can do it again and again, over and over. But once you go into a fund, like a REIT, so you exchange into a REIT, you can't go back out to hard. Assets, you can't go back out to buying a house or something like that.

Chris Holling: 20:38

Okay.

Sean Cooper: 20:39

So

Chris Holling: 20:39

yeah,

Sean Cooper: 20:40

one thing to be aware of, anyway, but that's, you know, there are hedge funds that invest in real estate. But otherwise, that's just kind of what we were talking about there. So,

Chris Holling: 20:53

right. No, I just wanted to touch on that, while we're while we're on it, that's For sure. So um, one of the one of the things, the disadvantages

Sean Cooper: 20:57

for sure. I talked about with hedge funds was the, that those high minimums, so the the minimum investment, some of the other things that you'd want to be aware of, if you were going to, you know, if you met these requirements, and could invest in hedge funds are going to be lockup periods. So a lot of hedge funds are going to have very low liquidity. So you can't just take your money out at any time. The way you could with, you know, a mutual fund, you sell it, it sells, at the end of the day, t plus two is trading plus two days, three days for the funds to be available for you to take them out and move them back to your your checking account or what have you. So you're looking at what a total, maybe four to five days, their total, with a hedge fund, you know, and if it's a stock or an ETF, it's going to be even faster than that, because the trading is instantaneous. Liquidity is still t plus two. But with the hedge fund, they're going to typically have lockup periods, and then liquidity events. So a hedge fund might say, Okay, you can't get your funds out for your lockup period is one year, they're going to be liquid at quarterly liquidity events after that time, so you can access your funds, once per quarter. If you miss that window, tough, you have to wait for the next quarter quarterly window to actually access your funds. Some of them might have lockup periods of five years, you know, if they're certain types of investments where they're investing in a very non liquid asset. So like a new company, or, you know, a bunch of private equity companies, and they aren't going to have liquidity events until those companies sell, then they have no money to pay you, though, that those funds are locked up. So there might be a very long lockup period in those instances. So liquidity is a big thing when it comes to hedge funds. And part of why a lot of average investors really can't afford to do it, in in addition to the the low minimums is they just can't have their funds locked up for that long period of time.

Chris Holling: 23:01

Gotcha.

Sean Cooper: 23:02

Another aspect of it is there, they do tend to have high fees, at least traditionally, the most common fee structure in the past for hedge funds has been what's called Two and 20. So that's 2% annual fee of your assets under management, plus 20% of profits.

Chris Holling: 23:21

Okay,

Sean Cooper: 23:22

so you're going to pay 2% annually. So let's say you invest that 100,000, you're going to pay 2%. In that first year, those assets grow to say 110,000. So that you're going to pay, so you've paid the two we'll say the 110 growth is after paying the two, then you've got $10,000 of growth, you're going to pay 20% of that, because that's your, the 20. So that's another 2000. So now you're at 108. So that next year, you're going to pay 2% of 108,000. Which is a little over 2000. And then from there, you know, depending on what the market does, let's say if if it drops back down that that one 110 is basically now a high watermark for you for most hedge funds so that the two and 20, the 20 portion is only going to kick in if you get back above that. So if it drops down and you go down to 105, or back down to 100 or less, you're not going to and then it jumps back up to like one. So it drops down to 90 jumps back up to 105. You're not going to pay that 20% Again, because all they did was recover their losses. It's not until you get back above that above that high watermark that 110 In this scenario that you're going to start paying the 20%. Again, you're still going to pay the 2% annually, but you're not going to pay the 20 until there are actual gains in the account.

Chris Holling: 25:01

Okay, okay, I think that makes sense.

Sean Cooper: 25:02

So in that scenario, you go from one to 10. You know, they do great. And they go up to 150. Okay, well, now you're going to pay the 20% on that other 40,000 of gains. Okay, but the 2% annual is going to happen regardless. So two and 20.

Chris Holling: 25:20

Gotcha. Okay, 2 and 20, 2 and 20 rule.

Sean Cooper: 25:23

Yeah, that's general, there are other structures out there, some of them just do the profit sharing where you know only gain, they only charge you based on the the gains that they make. Some of them have just a very low annual fee, and then they they make most of our money off of the gains, it, it varies a fair bit. But that's the general rule. So you do want to be aware of it. And understand that it tends to be fairly high, because two and 20, you know, you're guaranteed to give up 20% of your profits, plus, you're paying 2% annually, so it, it adds up pretty quick.

Chris Holling: 26:01

Sure,

Sean Cooper: 26:02

they're also often investing in things that tend to be fairly risky. You know, again, that varies a great deal, depending on the hedge fund that you're investing in. But they can invest in things that tend to be fairly risky. So you want to be aware of that as well. That's on. That's the disadvantages, the advantages. There are a variety. So because they're not regulated in the same way, they tend to have some more leniency in terms of what they can invest in how they can invest, that provides some unique opportunities. Whether it's direct investments, like we were talking about direct investments in private equity, or a variety of other things where you're getting access. directly to these funds, there's not multiple layers of removal between you and the the underlying investment. By having that direct investment, it actually provides for lower lower correlation, more diversification, we've talked about that a little bit in the past. There's also some more unique strategies that they can employ by having that that leniency that leeway, in terms of what they do, a lot of them will employ leverage mutual funds are able to do in ETFs are able to do that now as well. But it's just a different feeling from that standpoint. But ultimately, that's what you're shooting for is that lower correlation with the hedge funds, unique strategies and direct investments that you might not otherwise get. In a mutual fund. We've talked before about the concept of alternatives. And how investing in these alternatives provides that lower correlation, that diversification that you're looking for, to balance out a portfolio, the closer you can get to the underlying investment, typically, the better you're going to be with that, in terms of the enhancements to your portfolio. So for example, there are mutual funds and ETFs that invest in some alternatives. And they are built on or potentially even managed by the same people that manage hedge funds. So they track the same things, but they're not necessarily able to invest in them in the exact same ways. And by being in the general market, the hedge fund, the mutual fund is going to naturally be more heavily correlated to traditional asset classes than the the hedge fund is going to be. And that liquidity actually plays a role in that. And we saw that in 2008 2009, where as people were selling in 2008, they were panic selling they were selling things, whether they're the valuation was actually going down or not. Quite frankly, hedge fund investors didn't have that ability because of lockup periods because of liquidity events. And so they couldn't panic sell to the same degree. And so valuations held more to a more logical level, if you will, for an extended period of time.

Chris Holling: 29:18

And, and so, I mean, when you're, when you're looking at these, like, I don't know if this is too broad of a question, because you're, you're kind of in, in depth on, on how these all pieced together at a kind of at its core, but like, when do you kind of start to say, I'm not even asking the question very well. Do you do you look at hedge funds as something that is a like you strive to get to a, a point where you're able to afford it and hey, I want a majority of my investing to be in a hedge fund or is it? Is it something that is kind of kind Like we talked about before, where it's a another tool for the toolbox type thing where you have X amount of investments and you want this to exist as, as something in addition to your repertoire, like, where, where do you start to consider it's time to look at hedge funds, and not just the monetary and the limitations and stuff? Like, where do you start to consider? Maybe I should look into this? Does that make sense?

Sean Cooper: 30:25

Yes, yes, um, it depends on why you're investing in the hedge funds. So you can get, you can invest in hedge funds that invest in traditional equity. And, to me, unless you're employing some kind of very unique strategy, I don't necessarily see a point. I Ok

Chris Holling: 30:48

I view the hedge funds, as in the alternatives realm. I think that's where their their niche really excels. And so from that standpoint, I view it as a target, something to strive for. Because the, the overall goal of alternatives is to provide lower correlation, better diversification, to enhance or optimize the risk return trade offs of the portfolio. And hedge funds traditionally do a better job of that than mutual funds or ETFs. So I do view it as a goal, a target for that portion of the portfolio, not for the whole portfolio, if that makes sense. Okay, yeah, that totally makes me

Sean Cooper: 31:33

I don't think it's worthwhile to pay the higher fees for hedge funds for some of your traditional asset classes.

Chris Holling: 31:40

Sure. And that's, that's what I was getting at, like I was, I was wanting to address like, Okay, I could I just have enough to get into this. And that's it, it would take it would take all of my capital, or all my everything to get into this. Should it be enough to be like, Yeah, let's let's make it work. Or if it should be something to add tools to the toolbox is really what I was getting at

Sean Cooper: 32:02

right.

Chris Holling: 32:02

So

Sean Cooper: 32:03

yep,

Chris Holling: 32:04

that's exactly what I was getting after.

Sean Cooper: 32:05

Yeah. And the other thing to consider is, you know, if, like we talked about, if you're going to be investing in these, most likely you're going to want some diversification between them, because you don't want just, you happen to pick a hedge fund that just does really poorly. So ideally, you'd want to have a few of them, which means a you're meeting the minimums for each of them and be if it's only a piece of your portfolio, your overall portfolio has to be large enough to meet all of those minimums, and still do the rest of your investing. So

Chris Holling: 32:43

Gotcha.

Sean Cooper: 32:43

Yeah. That's, that's the gist of hedge funds. I mean, you've got some hurdles to overcome, there's def, some definite advantages. And we've talked about some of the strategies before in our alternatives.

Chris Holling: 33:01

Yeah,

Sean Cooper: 33:02

podcastle, hedge funds do a lot of that. That's where it started. Mutual funds, and ETFs have only recently started providing some of those. And like I said, they don't do it quite as well, at this point. They, they, they help the average investor get into some of those strategies, but they're not perfect. So

Chris Holling: 33:26

no, that's, that's perfect. And actually, that's, that's why I asked the question that I did, where I wanted to make sure that it was a, you know, we've we've talked about this before, we've talked about hedging to kind of offset some stuff. And when we've discussed things like diversifying a portfolio and, and that's, that's why I wanted to ask where it was because we're, we're continuing to grow the, you know, take this into consideration, this might be something that would be additional to what you want to take on and, and that's exactly what this is. I'm glad we're encompassing that of being a you know,

Sean Cooper: 33:56

yeah,

Chris Holling: 33:57

as as I'm saying this too many times, you know, more, more tools for the toolbox kind of thing.

Sean Cooper: 34:02

Exactly. Yeah, it's a piece to consider. And it's not for everyone, because like I said, there are there are issues with it. The liquidity is a huge one. Certainly meeting the minimums is a big one. And the fees are a hurdle. But like I said, you look at the big endowments, Yale, Harvard, a 60% in private equity, that's not a that's not a liquid 60%. But they also have such large assets that they're working with that they know the amount that's going to be coming out of the endowments, so they can plan for that liquidity years in advance and have it available, and they can still deal with all those lockups. The average investor can't put 60% in private equity and deal with the lockups that are associated with it. So

Chris Holling: 34:50

right

Sean Cooper: 34:50

it's a it's a different view. But it's one that I think is worth emulating to a certain degree for many people. But it's not for everybody.

Chris Holling: 35:00

RIGHT. SURE. That absolutely makes sense. Okay, great. Well, is there anything else that you think we should would touch on with it? Or how do you feel with it?

Sean Cooper: 35:10

No, I'm, I'm good. We hit everything I was I was shooting for so a fairly simple concept today. I mean, fairly short concept, I should say. Yeah.

Chris Holling: 35:20

Yeah. I think I think that's, that's putting it well, well, and, you know, just just go go out, go. Go collect your, your leaves, for for your your bag of hedges. And maybe someday you'll have a value of 250,000 leaves available to I don't know, I'm just babbling at this point. Cool. No, I'm glad we're able to touch on this we're able to, to get after another opportunity. Well, let's wrap us up then. Thank you again, everyone, for joining us here on The Truth about investing back to basics. My name is Chris Holling.

Sean Cooper: 36:03

I'm Sean Cooper.

Chris Holling: 36:05

And we will catch you on the next episode here in our seats. I was I was trying to attach something to it. I was trying to to encourage I don't I don't know what I was trying to do. I was trying to I was trying to blossom our our outro I'm just I'm just blossom. Like

Sean Cooper: 36:27

yeah,

Chris Holling: 36:27

hedges.

Sean Cooper: 36:27

Yeah, I knew where you were going.

Chris Holling: 36:29

We'll catch you guys next time. Podcast disclaimer disclaimer. The disclaimer following this disclaimer, is the disclaimer that is required for this podcast to be up and running and fully functioning and moving forward. This is going to be the same disclaimer that you will hear in each one of our episodes. We hope you enjoy it just as much as we enjoyed making. All content on this podcast and accompanying transcript is for informational purposes only. Opinions expressed herein by Sean Cooper are solely those of Fit financial consulting LLC unless otherwise specifically cited. Chris Holling is not affiliated with Fit financial consulting, LLC nor do the views expressed by Chris Holling, Me again, represent the views of fit financial consulting, LLC. This podcast is intended to be used in its entirety. Any other use beyond the author's intent distribution or copying of its contents of this podcast is strictly prohibited. Nothing in this podcast is intended as legal accounting, or tax advice, and is for informational purposes only. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. This podcast may reference links to websites for the convenience of our users. Our firm has no control over the accuracy or content of these other websites. advisory services are offered through fit financial consulting, LLC, an investment advisor firm registered in the states of Washington and Colorado. The presence of this podcast on the internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow up for individualized responses to consumers in a particular state by our firm in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption. For information concerning the status or disciplinary history of a broker, dealer, investment advisor or other representatives. A consumer should contact their state securities administrator. Amen. The science when we laugh and why Americans like jokes that include insults or vague threats.

Sean Cooper: 39:15

I believe that

Chris Holling: 39:16

Texas, Texan says where are you from? Harvard graduate. I come from a place where we do not end sentences with prepositions. All right. Where are you from Jack reccording button pushed blue,

Sean Cooper: 39:36

green

Chris Holling: 39:38

smeared burgundy.

Sean Cooper: 39:44

What's in murburgundy?

Chris Holling: 39:45

I was starting to say seven and then I thought Why would I wrote I switch to numbers. I should go to like a shape. And so then I started to say square and then I was like, well, maybe I need another color. What color starts with S Like I don't know a collor t at starts with S, silver now I was like, smearbu

Sean Cooper: 40:07

wasn't coming to you at the time. That's fair.