What you should know before buying biotech and or pharmaceutical company stock

biotech-researcherThe mere words biotechnology and pharmaceuticals may make people think of brilliant scientists concocting the next great miracle drug, but what about investing in their companies? What should you know about investing in these cutting edge companies before you put even a cent of your money into them hoping for that giant payoff? Below, we will discuss the basics of the pharmaceutical and biotechnology industries, as well as discuss some of the prominent companies to invest in. Before that however, the following article will outline what you need to take into consideration before you take the leap and throw your hard earned dollars at these companies, instead of spending your money else where where you could potentially earn more.

First, let us provide you some background definitions to help you better understand the nature of these industries:

“The pharmaceutical industry develops, produces, and markets drugs licensed for use as medications.[1] Pharmaceutical companies can deal in generic and/or brand medications. They are subject to a variety of laws and regulations regarding the patenting, testing and marketing of drugs.”

“A “biotechnology company” is a company whose products or services primarily use biotechnology methods for their production, design or delivery.”

Who will come up with the cure for aids, cancer, or even diabetes? Wouldn’t it be neat to invest in companies and help them come up with a cure for the masses, while getting rich at the same time? The truth is, it may sound more appealing than it really is. You may be better off simply donating your money to help – because the financial picture shows it’s downright risky business. Even if their idea and science is the best ever, it doesn’t mean the company has the necessary resources and or money to bring their product to market and effectively sell it.

You see ads everyday, for cures like erectile dysfunction to insomnia, and the list continues to grow to even include cures for your pets depression (what, you didn’t know dogs could be depressed?). Before long, there may be a pill for every ailment out there (many argue there already is something for everything). But can you effectively finance their company and or product development without them going broke first (after the company is forced to jump through various hurdles including FDA trials and the likes)?

Understanding the complexity of bringing drugs to market is only one piece of the puzzle. Many investments in biotech and pharma are an exercise in waiting. Wait before you exclaim that you can wait. There is an opportunity cost in that there are many other investment opportunities out there that you can spend your money on which may be less risky and even offer better returns.

How about this stat to squash some of your enthusiasm…

“Only one in ten biotechnology companies were considered profitable in mid-2005.”

Now that’s scary if you ask me. Why would you dump money into something that was shown to have a success rate of 10%? Certainly there has to be better opportunities out there.

That doesn’t mean however, that there aren’t excellent pharmaceutical and or biotechnology companies to invest in , it’s just a stat to help you see that there are significant barriers for these start-up companies – and you should use major caution before investing in them. Below, we will discuss what to look for if you are leaning towards including one of these types of companies in your diversified investment portfolio and which companies are doing well in this area now (not that chasing past performance is a good idea, but it’s  start into understanding these markets).

Before we even get started, let us lay a foundation or background so you can understand most recently what pressures have been on these companies and their stock prices. With the new administration in the White House, healthcare companies in general have seen their future earnings expectations to slow – as the Obama administration has focused their attention on subsidizing the entire industry. This is a massive shift, whether you agree with it or not, on the outlook of this once overly profitable industry. The caveat being, this is not necessarily a crushing blow to these markets as the entire US age shift continues to push more and more people into retirement age and its associated health care maintenance. In a nutshell, even though profits may be lowered, there are going to be a ton more people needing health care services as the general population ages.

What to look for you’re asking? As always, look for companies with a stable and smart management team. Good leaders can do amazing things when they are given the chance, especially look for a management team with a scientific background, which will poise them with a competitive advantage over their peer companies.

However, without the long term financial support, even the best management team cannot operate. Look for companies with a solid balance sheet, meaning look for companies with relatively low debt and significant cash on hand to weather longer than expected clinical trials and such. It helps as well if the company has various products rather than one or two – so when something goes wrong they to have a diversified portfolio to help them combat the cyclical nature of their profit models.

Not to mention, look for companies with products that can be taken to market in a relatively short time compares to their peers. The faster to market, the faster to put the money in their pockets and yours.

The following is a list of several profitable biotech and or big pharma companies that you could start looking at to get an idea of what it takes to be successful in the industry. If your prospect compares well to one of these guys, you may have just found the right gem for your portfolio – but be leery as you know – things may not be as kosher as believed. Following the list we will wrap up this article with a last tidbit of advice.

big pharma and biotech

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To wrap things up, an interesting article over at Morningstar highlighted the feelings of a few top global fund managers, 2 out of 3 agreed to steer away from these risky stocks. Just because it sounds good, even for humanity, it may not make sense for your finances.

Be certain to check out our broker reviews and lessons if you’re interested in starting your own portfolio.


Tradesight can help the amateur investor become a professional

screentradesightTradesight is another excellent tool to learn about investing..

Investors who subscribe to Tradesight will learn new trading strategies and ways to improve their current strategies. Tradesight is a financial magazine website that aims to educate. Tradesight will teach you with expert market assessments and ratings along with the underpinning principals for people who want to be successful traders and build their own their financial portfolio.

To subscribe to Tradesight is to get direct access to Christopher Mercer, chief executive, president and all round financial market guru. Mr. Mercer has a big reputation for expertise in all the money markets and has been featured in the essential trading industry publications like Trader’s Magazine and The Phoenix Business Journal.

Tradesight has the credibility of longevity. It has been running for six years as a subscription newsletter website. Tradesight teaches on stock market trading, foreign exchange or ‘forex’, futures, small caps, and the exchange traded (mutual) funds, ETF markets. The forex and stock markets are taught in special ‘labs’ with as many as five analysts in each chat room available to coach traders on improvements to their style of dealing. Trade calls are put forward every day in all of the markets, and numerous esoteric reports are circulated to subscribers with interest in various markets. The number of subscribers Worldwide is approaching 1000 and are to be found in 22 countries.

The Tradesight Messenger and Tradesight Trading Room put subscribers directly in touch with the guru himself, Chris Mercer. These chat-rooms are modified cutting-edge RSS based systems that give ‘open all hours’ communication between Tradesight and its subscribers. In the Tradesight Trading Room, people looking to trade can learn from one another as well as the Tradesight analysts using text, voice, and email chat components. You can even subscribe now to a Chris Mercer ‘Tweet’

I am a natural skeptic, so my first thought on joining the Tradesight forum was ‘if these guys know so much how come they want to share their knowledge?’ But after just one week I was a convert. Some things I learned from Tradesight were.

* The teachers’ motivation doesn’t matter. It is what I take from the experience that counts.
* You can save a lot of time and money by hearing about others’ mistakes and trading strategies.
* I thought I was pretty well up on forex and doing OK but I really haven’t scratched the surface.
* I had a trading strategy that was earning pips six times out of ten trades and there were two enhancements that gave me an eighty percent success rate. This alone paid back the subscription charge.
* Good forex charts can reveal exact levels in particular markets for support and resistance. These are price pivot points where currency pairs will bounce up from or down from respectively. Tradesight gave me Mark Likos’ Forex Levels, as part of their service. Using eSignal Formula Script (EFS) I can now get these levels each day automatically in my eSignal charts under my preferred Forex symbols.
* I learned about a whole new forex tool, in ‘pivot lines’ for the market session ahead. The pivot line is critical in defining the Likos ‘Value Areas’. These are the price bands either side of the pivot line . Above it being the Value Area High and below being the Value Area Low. In all probability the currency pair price will move across these value ranges bouncing off the support and resistance levels and signalling a buy or sell for likely profit.
* For others, who like me were unfamiliar with the Value Area, before I subscribed to Tradesight, it represents the major slice of yesterday’s trading range. The Value Area strategy is to begin the trading sessions outside of the range and then sell short or buy long as the currency cable enter the Value Area.

For beginner stock traders, Tradesight has all the comparison data you could wish for to make the right choice for you for online brokerages. In summary, Tradesight is for serious investors. Serious investors are people who are proactive about learning and practicing what they learn. There is always someone who knows that little bit more than you or has a different and valuable viewpoint to you. When it comes to money matters, Tradesight is the place to gain the knowledge you’ve missed out on.


Tradesight where it is all very clear


Morningstar is an excellent investment tool

morningstarMorningstar has all the tools to help you better analyze your investments.

To sign up with the Morningstar service is to plug into huge amounts of investment information. Morningstar also offers a large number of financial tools to help individual and institutional investors to make better (more profitable) financial decisions. If you have ever visited the website Morningstar.com you were probably looking for details on a company such as its stock price history or what the analysts’ are saying about stocks. The Morningstar facts are very accurate, ‘up to the minute’ and comprehensive. The Morningstar opinions are based on stock price graphs, income statements, balance sheets, statements of cash flow, earnings estimates, insider information, and everything relevant to money matters.

Signing up to Morningstar will help you in getting information relevant to your individual investment decisions. A personal portfolio with Morningstar.com means getting timely daily notifications of current prices and stock price movements that can be significant trading signals. Any job requires the right tools for successful completion. When the job is making money from investments the best tool is Morningstar. For example; if you want to add to your portfolio with company shares in stocks that have high growth potential (and what investor doesn’t?) as indicated by price to earnings ratios of less than 10 or a specific market capitalisation, then your personal Morningstar stock selector tool can deliver a hot list of potential stocks that meet these criteria.

For the amateur investor, Morningstar is an invaluable source of advice. So, if you are looking to tune up your 401k retirement fund with promising stocks then you can let your Morningstar membership pay for itself with recommendations from the insiders and professionals. But don’t just take advice blindly, make use of the Morningstar.com ‘University’ section to answer all of your financial questions. When the answer isn’t readily available you can “Ask the Professor” and get an e-mail response from the people at Morningstar.com.

Most of the Morningstar tools are free once you register with the website. However, there is a second, more privileged level of membership that you can pay for. If you are serious about investing then membership will give you full access to all of the information available at Morningstar. This membership is called platinum and there is currently a 14 day free trial period that promises a ‘portfolio X-ray’, independent analysts research and tips for the markets today. The paid Morningstar membership, lets you in on in-depth information and analysis from the team around your personal portfolio. It will help you find stock opportunities and special advice to highlight the analysts’ hot tips in both stocks and funds.


Morningstar Stock Fund Investment Research

Morningstar.com is a well- organized site that’s easy to navigate around, making sure you find the company information that you need. It is one of the financial web services that is one of the most frequently used. I like the relevance of the data and I like the way that Morningstar keep the information updating constantly. All financial web services are satisfactory for getting stock quotes, but the earnings and financial statement data should come with a ‘use by date’. Some services take four weeks or more to update company numbers when new earnings are announced. Morningstar are always there on the day.

Because of this free trial period offer, now is the time to join Morningstar to get a time-line view of your investments. So you can learn from your past mistakes on how you lost money with an exhaustive analysts report on your trades in stocks and funds. Or how you made money on your current holdings. Especially useful is how your trades lagged behind or outperformed comparable stocks and funds.

Using ‘stock intersection’ and ‘X-Ray’ tools Morningstar will assess your present time exposure to risks in geographical regions, stock sectors, and individual equities. This analysis will highlight unnoticed concentrations, gaps, and any duplications that you didn’t know were there. You will get to know how much you really own.

Your future portfolio performance will then be based on professional insights into your past performance and guided by professional advice on individual stock and fund prospects.

Morningstar – Independent. Insightful. Timely. Premium Membership – Get your FREE 14day Trial!

$20 off a one year subscription for an Annual Premium Membership at Morningstar


Futures and options trading; What they know and you don’t

HS003339What makes a great futures and options trader? Effective traders have four distinguishing characteristics.

  • Technical knowledge of futures and options, the futures market in both bull and bear phases and the trading platform that they operate. Futures contracts are promises to buy (or sell) commodity X (in known quantities and of a specified quality) on a specified date yet to come. Futures and options are traded electronically on the global futures exchange. This is a World wide market that never closes and brings buyers and sellers together in real time and where prices are fluctuating constantly. The exchange clearing house is the third party in all contracts. It sets margin requirements, and enables all contract settlements. Futures contracts are a kind of security, like a stock or a bond but not ‘direct’ in the sense that stocks are. Futures for speculators are contracts one level away from stocks because they are in the future and two levels away from real estate because they are about prices on a computer screen rather than physical assets. The price of commodity X at any one point in time is set by the interaction of global supply and demand. Take coffee for example, this a commodity traded in the futures exchange. The supply of coffee beans now and in the foreseeable future is limited by the number of plantations in the World and their productivity. Weather conditions or geopolitical events (even rumors) can cause significant variations in price over the long term. On the demand side the price is determined by the popularity of coffee as a beverage. It requires a great deal of detailed analysis and study to separate out the factors that influence the price of coffee and by what magnitude they change it. The interplay of global demand and supply is a hugely complicated process that does however lend itself to technical ‘charting’ analysis. Many futures traders succeed in predicting and making profit from price trend movements in commodities. The commodity X however is not necessarily a physical product. It can also be a financial derivative, such as securitzed bundles of mortgage debts or even even totally man-made and referenced things such as stock indices or interest rates.
  • A mental model of how the prices in futures and options market are determined and what makes them move in the short, medium and long term. For the great futures trader the actual commodity is largely a matter of little interest. The great trader will study the market conditions, make their best ‘guess’ as to the direction of the price movement in their chosen time span and buy (or sell) contracts in that direction. There is always a date in the future called the ‘delivery’ or ‘final settlement’ date. The price of the futures contract on the exchange at the close of trading each day is called the ‘settlement’ price. A futures contract is an obligation on the trader to make or take delivery under the terms of the contract. Both the seller and the buyer of a futures contract must fulfill the terms of the contact on the settlement date. The wise trader never commits more money than they can afford to lose on their total trades. Traders only deal in cash profits and losses, while coffee companies deal in the actual delivery of physical coffee beans. Traders can get out of contract commitments before the actual settlement dates by offsetting their position, selling a long position or covering a ‘short’ position by buying back and in effect closing the contract down. Mini futures, or Emini contracts, are lower value versions of normal futures contracts with lower margin requirements. These are popular with new and individual traders.
  • An effective strategy that isn’t about reading price movements in a crystal ball. Trading futures is much like trading stocks. It is important to have a market entry strategy based on proven trading signals and a predetermined exit strategy that takes profit or cuts losses. There are three stages in the development of an effective trading strategy. First plan it, then test it out in simulated trades, then do it for real. A simple Internet search will throw up endless advice on futures and options strategies. There are also numerous trading platforms where you can open a practice account to implement your chosen strategies using real data but without risking real money. An effective strategy is one that makes money over a period of time. It does not necessarily mean that all trades are money-spinners.
  • A psychological profile that tolerates risk, works in detail to reduce it and never relies on blind faith or hope to turn a bad situation good. Futures trading is not for the faint hearted. There will come a time when commodity prices move against open positions. Some you will win and some you will lose but the great trader knows that the overall balance will be positive when the strategy is right. Traders have access to a great deal of trading information in real time but using too much leverage or opening large positions relative to the size of the account, is a strategy that can give heavy losses. The mentality of the trader is as important as an effective strategy. It requires attention to detail and resilience in the face of contrary price movements. It also requires patience and self belief to not ‘jump ship’ in the face of short term adversity.

Oil investing; You better know this before you buy this investment

earth-drowing-in-oilOil stocks have been making nice gains over the last year, and have been doing even better over the past quarter. Is now the right time to buy or what? This article will quickly explore what the markets are saying, because stock price alone does not necessarily indicate a good buy.

If you were to merely try and chase recent performance you would find out quickly that it’s not very profitable. Instead, you should develop an investment plan, understand who you are investing in by analyzing company fundamentals and technical, and gather an understanding of what the markets are saying.

Below, you can clearly see that oil companies have been doing very well over the past year. However, this maybe misleading as we will discuss.

oil stocks

The fact is, traders are currently paying big dollars in the options market to protect against a massive plunge in oil prices expected later this year. Why is this? There has been a huge increase in reserves as consumption hasn’t matched supply. Moreover, the US alone has over 14% more oil reserves than we had a year ago.

Currently, the price per barrel of oil on this 23rd day of September, 2009, is hovering around $71. Put options, or the right to sell, show the most popular put option for December was to sell oil at around $60 per barrel, with the second most popular option to sell at $50 per barrel. What does this mean? Traders are expecting a big drop in the price oil.

Having said the above, the short term outlook would mean that oil is actually a bad short term investment at this time. A major drop in the price of oil would clearly cut into profit margins of the major oil companies and would have an adverse affect on their stock prices. However, over the long-term that might not be the case. Many argue that economic growth is the name of the game, the price of oil is more closely related to future expectations of it’s need to sustain an economy.

It’s important to understand what has driven the price of oil up to its current price after the bubble popped and the price per barrel drop to its most recent low where the price per barrel was around $35. Most attribute the doubling in price as being tied to economic stimulus spending – which will eventually slow as those projects are completed. You’re depending on the economy to keep it’s current pace and or increase it’s output substantially in order to keep the price growing. However great this may sound, it’s probably not too realistic.

Something else to keep in mind when looking at the price of oil is how the dollar affects its price. The price of oil will climb as the dollars loses its value against international currencies. As the dollar gains value, the price will lower.

So where do you go from here, since oil just doesn’t seem to be the greatest short term investment? We know you won’t like this answer – but if you’re new to investing – you have to understand – the best advice for you is to help you understand; the answer truly depends on your risk tolerance and how your portfolio is setup – ensure you have a diversified portfolio. At this point, we would recommend finding those companies with good fundamentals and lower stock prices. Chasing recent performance just doesn’t make cents.

If you’re new to all of this, a great place to get started understanding investing is in our lessons located on the drop down bar above.


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Top 5 stocks for your investment portfolio – Large Cap edition

Continuing on with our series on the best stocks over this past year, we’ll take our focus over to the big dogs on the block to further identify those companies that are doing well in spite of this recession. Below, we’ll look at large cap companies (those with a market capitalization above 5 Billion dollars) and identify the largest percentage gainers over the past 52 weeks. We’l talk about what they for business. Moreover, I will provide insight as to where you can expect these companies stock prices to move in the future.

1. NetEase.com, Inc. (ADR) (NTES) %62.96 gain in the past 52 weeks.

The number 1 guy in the past year operates online communities and games as well as an ISP in China. They drive a portion of their revenue from advertising on their sites. An interesting trend is emerging, Chinese companies are doing quite well. They appeared several times on my small cap list of best performers.

2.Fairfax Financial Holdings Limited (USA) (FFH) %48.05 gain in the past 52 weeks.

This company has grown tremendously through acquisitions. As the big dogs crumble,the smaller dogs get more food. Their stock gain may related to their gobbling up of additional shares of Advent Capital (Holdings) PLC (Advent) and other acquisitions of additional insurance companies.Big dividends(last one around $8 in January) make this an attractive company for investors seeking an income.

3.priceline.com Incorporated (PCLN) %47.99 gain in the past 52 weeks.

This company has been doing really well in converting sales again in the travel industry, but so has every other travel company. The only thing that makes these guys unique is the fact that we’re looking at large cap companies. The truth is, other smaller companies have been outpacing these guys. Just check out Expedia. They’re price is much more affordable if you’re not working with much money.

4.Discovery Communications Inc. (DISCA) %39.20 gain in the past 52 weeks.

Who hasn’t watched something by Discovery now? Well, most Americans have, that’s for sure. This company has experienced slow consistent growth over the past year. Watch out for their stock to continue this path. But don’t overlook companies in their industry such as Viacom, who is also doing very well.


5.O’Reilly Automotive, Inc. (ORLY) %35.22 gain in the past 52 weeks.

ORLY? No really, if you don’t have the money, you’re more likely to fix it yourself. This companies success may hinge on the recovery, in that if we recover, they’ll suffer. Not to mention, the recent cash for clunkers program may take a bite out of their potential customers; if they’ve got new cars it may be a while before they need replacement parts. You may be better off steering clear of recessionary companies at this point, even though it’s still not clear we’ve made it past this recession.


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Top 5 stocks for your investment portfolio – Small Cap edition

The stock market has rebounded as the DJIA has risen from a low in the beginning of March when it was teetering just below 6500 points. We’ve gained back nearly 3000 points in less than six months. However, some companies have still been struggling, while others are prospering and booming. Below, we’ll take a look at 5 companies with a market capitalization of at least 100 million, but below 1.5 billion (small cap stocks), and who were the best stocks year to date:

1. Kirkland’s (KIRK): This small cap specialty retail home decor store chain has seen their stock price shoot up nearly 500% over the past year. Watch out though, recent earnings reports indicate this stock may have hit it’s peak. If people are going to be stuck in their house, it seems logical they want to look at nice things.

2. China Green Agriculture, Inc (CGA): Everyone knows organics are trendy, so how couldn’t we have seen organic fertilizers as being a smart business; especially considering the heart of their business is China, with a country population of 1.4 billion people. A recent pull back in price makes this 335% gainer an attractive buy once again. Keep in mind though, organic consumption is dropping while consumers cut back on everything possible. This small cap stock is worth looking into further.

3. STEC, Inc. (STEC) has seen their stock price triple over this year, and they don’t look like a simple flash and dash. Flash drives is their core business, and their technologies are gaining them a competitive advantage. Their stock price is up over 200% and with a market cap around two billion, these guys will be around for a while.But remember folks, buy low and sell high. They just might be at their peak.

4. Isramco, Inc. (ISRL) is a natural gas exploring, crude oil pumping money maker. Their small cap company has seen their stock double in these tough times. Watch out though, rumors on the block are these guys are being investigated for securities fraud.

5. American Dairy, Inc. (ADY) operates in China offering unique dairy products to fulfill special dietary needs of a massively diverse population. These guys have been around the block for over 5 years and hit a wall earlier this year, however, they have since seen a steady increase in their share prices over the last month or so. Their recent earnings release was mixed, but all indicators point to this stock showing promise.


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Cool Stock Market Games, Fantasy Trading

I remember back in the day, a really cool stock market game that I used to play. It was a DOS game, and it wasn’t pretty (graphically speaking, remember this was before windows), but damn was it fun! I’ve been looking everywhere for some free games where you can practice investing, and I’m certain there has to be some other cool games out there. For now, I present you with this cool game that is completely free, that you can actually earn real money playing.


I’m looking for other games if anyone is willing to share. I’m certain there has to be some other ones out there, and if someone can help me remember which game I used to play back in the day, I would sure love to get a copy of it.


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What is options trading? Who uses options trading and for what reason?

An “option” is a financial contract, which enables but does not oblige someone, to buy or sell a specific stock or currency before a specified time in the future at a fixed price. The price is normally set when the option is purchased. The value, of a buy option commonly known as a call option, increases as the stock price it relates to rises and similarly the value, of a selling option commonly known as a put option, increases as the relative stock price falls. If the option is a call option then the buyer can decide if the sale of the stock should take place and if the option is a put option then the seller makes the decision.

Options are derivatives, which means that their price is derived from the stock that the option is relative to.

Traders and investors use options trading to gain a higher profit on the relative stock and to limit any risk. They employ various option strategies to enable them to profit from the way they think a certain stock will perform. These strategies generally fall into 5 categories.

A bullish option strategy is one to use if you think the stock will rise.
A bearish option strategy would be used if you think the stock will fall.
A volatile option strategy would be employed if you think the stock will rise or fall dramatically. This strategy is particularly useful when although the stock is expected to move it is unsure in which direction. This situation is commonly known as volatile stock or volatile market giving the strategy the name volatile option strategy.
A neutral option strategy would be used if you think the stock will remain at the same price or as with some neutral option strategies within a specific price range, which is predetermined.
Option arbitrage strategy would be used if you see a price discrepancy. These discrepancies happen very rarely and are normally only picked up by options traders who have specialised software that is monitoring the market.

By using options trading, investors and traders alike are speculating and hedging the risk. Whenever we buy stock we are speculating because nobody knows with complete certainty what a particular stock is going to do and we all know that there is a degree of risk with any investment. By using options you are hedging the risk, that is, protecting yourself against unknown circumstances.


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What is a hedge fund? Why would one want invest in this?

It is generally accepted that the first hedge fund was created in 1949, when the financial journalist Alfred W. Jones attempted to equalize the effect of the market on his own investments. By buying stock that he expected to rise in price and selling short stock that he expected to fall in price Alfred W. Jones was hedging his risk. As the name implies he was “hedging” his risk on the movement of the market thus creating the first hedge fund.

Today the term hedge fund is applied to many investment funds some of which do not hedge investments to reduce their risk but to increase the risk and gain a higher return.

Normally, hedge funds are only available to wealthy people or professional companies or institutions for example pension funds. Hedge funds are investment companies usually run by a group of investment managers. Other hedge funds are not so big and are only staffed by a couple of people. However, large or small they all have considerable experience in the financial world.

The hedge fund aims to make a profit. If the investment managers think something will make a profit they will invest in it. They employ various strategies to help them achieve this end.

So what makes the hedge fund different? A hedge fund manager will have to use his considerable skill to achieve success and the state of the market will not necessarily have any affect on this. For example, they give investors the opportunity to gain returns on investments, such as stocks or shares, regardless whether that share price is rising or falling.

Hedge funds are well known to be heavily involved in the derivatives market. This is where they gamble on the direction a particular stock or currency etc., is going to take. Frequently, hedge funds operate almost totally in the derivatives market instead of buying the actual stocks or shares. If this is done to create a bigger investment it is called leverage.

Although the aim of a hedge fund is to make a profit this does not always happen and sometimes they have only mediocre results. Also very high fees are often charged so a certain amount of research needs to be done to pick the correct one. This can prove difficult on occasions, as many hedge funds will not disclose what their results are to anyone other than their own clients.

The number of hedge funds in existence has increased considerably over recent years but it should be remembered that this is just one of a variety of choices for your investment.


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