Investing Thesis

So, what will this fictitious hedge fund invest in?

Well, how about stocks for starters. And how about it actually hedges, but mostly goes long. Say, maybe it will have a hedge for each sector that it invests in, like a double down ETF. Maybe one day I will learn about bonds and add them as well.

Now, what kind of stocks. Now, I don't know much about value investing, and when I try short term trading (with fake money, of course) I generally lose as much as I gain, or more. However, I don't really understand buy and hold investing. The stock just sits there, and magically rises in value? I don't really buy it. I much prefer dividend paying stocks, as they provide an income that can be reinvested, possibly in other stocks if I so choose. Also, the word is that they are more stable, although in the current market I haven't seen that to really be the case.

Now, a large number of dividend stocks are financial companies, which have recently had, well, a bit of a shake up. However, I think I will invest in some of the more promising looking ones, as their share prices have taken a massive beating and they offer reasonable dividend yields now. Also, RIET funds (real estate investment), shipping companies, and some oil/utility companies seem to pay reasonable dividends. These are also not exactly stable right now, as real estate, shipping, and oil prices have all taken a beating. However, I will be ever the optimist and buy into some of these while they are cheap as well.

However, everything I read tells me that diversification is good. So, I will look at dividend stocks in other areas as well, such as consumer goods, telecom, commodities, medical companies, the whole nine yards. Some of these may not pay stelar dividends, but they will give me a good wide base of investments, so that when I sink I will at least have sank with a whole ship instead of just a risky plank.

Finally, how will I limit losses? I allready said I will hedge, but when will I sell the hedge? How will I rebalance if the market crashes and my hedge is suddenly a large portion of my portfolio?

Well, I think I will limit my long losses with trailing stop loss orders, but as the market is preposterously volitile I will probably set them rather low. As for the hedge- I think if it increases in value significantly (say 15%), I will sell 25% of it and reinvest that in long stocks. Depending on if I think the market is going to keep going down or go back up, what I do next may vary, but the idea is to get out of my hedge slowly as the market drops and still have some left to sell at the bottom, so that I can buy back in long. Of course, I will certainly miss the bottom but if I cost average in over the trough, it will hopefully turn out better than I would have done with no hedge. Then, ideally I will buy back a new hedge after the market gets a little healthier and the double down funds are cheaper.

Okay, so that is the extent of the Ficticious Hedge Fund's strategy thus far. More will be posted as it percilates into my brain. Expect the first few stocks to be added to the fund in the next few days.