Hedge Funds - Deepstash
Hedge Funds

Hedge Funds

... are investment vehicles which aims to hedge (aka minimize or eliminate) market risk. Some differences from traditional funds:

  • they are available to people with more than $1-5M
  • they are available to "accredited" investors, so they are less regulated
  • less regulation means they can invest in anything from stocks to Pokemon cards
  • they can also borrow a lot of money & bet against prices (shorting) 
  • they are quite expensive, charging a profit over a certain return threshold (hurdle rate)

Hedge funds have a bad rap for their unorthodox methods, but help keep prices in check for whole markets. 

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The Buffet Indicator

The Buffett Indicator is the ratio of total the United States stock market valuation to GDP. It is said to be the best predictor of market corrections or crashes. 

As of May 6, 2021:

  • Aggregate US Market Value: $51.8T
  • Current Quarter Annualized GDP: $22.6T
  • Buffett Indicator: $51.8T ÷ $22.6T = 229%

Historically, when the stock market went above GDP by 50-100% it crashed, going below GDP. 2021 is the year in the last 100 years when the ratio was over 2x the largest stock market in history.

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