ABSTRACT
The hedge fund industry is a byproduct of the article Fashion in Forecasting written for Fortune magazine by Alfred Winslow Jones in 1949. Today, Jones' long-short approach is one of the most common types of hedge fund investing, representing about 5 percent of total hedge fund assets. It typically involves taking long positions in equities considered undervalued by a hedge fund manager, and taking short positions in equities considered overvalued. Investors need to be able to separate facts from fiction about hedge fund investing. This chapter debunks several myths: hedge fund investing and selection of top performers are easy; hedge funds hedge; active and socially responsible hedge funds outperform; and investors benefit from hedge funds identifying undervalued stocks. Hedge funds are run by incredibly intelligent people with Ph.Ds. in advanced fields such as rocket science and string theory.
