Quote:
Originally Posted by Beestie
Hedge funds shouldn't be used as primary investment vehicles anyway. Their primary purpose is to hedge against risks that cannot be offset by diversification such as exchange-rate risk.
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Are you investing to solve a problem in the economy or provide a company with a solution? If investing to advance mankind and society, then a profit is earned. If simply investing to make a fast profit, then the resulting losses were deserved. Others argue silly nonsense such as greed. A responsible investor instead sees real assets, services, or products.
Hedge funds that should be profitable invested in risk directly attached to existing real assets. Such funds also would be transparent to investors.
Part of Madoff's trick was to deny direct investment. Investments were made through feeder funds. The investor then (foolishly) thought that broker was a financial guru. In reality, that feeder fund was nothing more than a salesman whose profits were larger when recommending Madoff. They never bothered to learn what Madoff was doing. Why would they? So many actually believe brokers are more than a salesman. Why bother to actually do the work when how the sale is made is more important?
Do you invest in a feeder fund who in turn invests in Madoff who in turn invests in equities too far removed from actual assets? No wonder the ponzi scheme lived on so long. Victims were too busy realizing 'profits' rather than first looking at what the fund was actually investing to advance mankind, the economy, and society.
Buy shares of Intel and actually see your investment is doing something productive and therefore profitable. Invest in an agricultural future so that the farmer can hedge himself (survive) from catastrophic risks. Do investing in regulated markets that are forced to operate ethically. The meltdown is directly traceable investments promoted only by myths; assets based only in paper and sometimes even in secret, private deals.
Madoff simply used additional 'layers' to play that game. To take investments from those too far removed to actually see what they were investing in.
Read the JP Morgan article. How do you know a problem exists? One gives bank money to invest. The bank takes a 2% service fee. Then the bank invests in another fund which also takes a service fee. That is an investor all but asking for trouble. A broker (or bank) should be the only service fee. The bank even quickly pulled out their own money but never bothered to inform investors who were even paying a 2% service fee.
Such investors are all but asking to be taken - just like investors in Bernie Madoff who could only invest through feeder funds. Just like anyone who pays a financial adviser a service fee to invest in mutual funds which then take more service fees.