What is a hedge fund? Let's talk some stock
market 101 information here, and when you're new and
just getting started, I'm sure you've heard of
hedge fund, whether that be on the news or maybe on
social media or in an article and you're wondering,
okay, yeah, I get it, hedge funds are associated
with Wall Street, but what actually is a hedge fund? How does it work? And full disclosure
here to honor your time, if you're looking for
some sort of in-depth, nitty gritty, every little
nook and cranny detail about a hedge fund, I'm
not gonna do that here. This is just a 101 topic,
so I want to talk about it from a broad sense so that way you have a better understanding of what they are, how they work the next time you hear them or if you're in a
conversation or whatever. So really, this is what a
hedge fund comes down to. A hedge fund is based around what I'm gonna call the dude, right? This dude is a baller. This guy, I mean, people look at him and they're like, oh yeah. Right, I think in this day and
age, the lingo would be bro, bruh, I don't even know,
but he's the dude, right? Everybody looks at him. Now, why do they look at him? Well, they look at him for really a couple different reasons. Maybe he's making a bunch
of money, maybe he's smooth. What do I mean by smooth? Maybe he's just a really
good smooth talker, he knows how to schmooze,
he knows how to, I mean, he's just, do you know anybody like that, that's just oh so smooth in their chat and they could probably
sell oceanfront property to somebody that lives in Iowa, right? That's how smooth they are,
but the point here being is he is the dude for these
reasons right here, namely though, the traditional
one is just gonna be he's making money, he
seems to be making money. He seems to be doing
very well in that regard. Well, what regard? Well, his money is coming from some sort of financial market. To keep things simple, let's
just call it the stock market. He seems to be making all sorts of money from the stock market which
is gonna cause this to happen. You're gonna have all
these other people out here and these people, they have
jobs, they're running companies, they're doing a variety of other things, but because this guy, the
dude, is making so much money, they're all like, wow, hey,
you're doing very well. I don't have time, I
don't have the desire, I don't have the passion, I
don't have fill in the blank to get involved and track the
stock market like you are. Well, you know what? Hey, can we do this? Can we throw you some money? Can you take our money and grow
it like you've been growing yours or other clients' or whatever? But if it's a hedge fund
that's just getting started, it'll be something like this,
but the point here being is even if the hedge fund is already done, if the hedge fund is showing
really good returns, I mean, that dude is just gonna become
that much more of a dude and you're gonna have that
many more people that want it, but at the core, you're just having a lot of other people that, like
I said, don't have the time, don't have the desire,
don't have the knowledge. I mean, these are gonna be
higher net worth individuals, but they're gonna be taking money and they're gonna be
giving it to this guy. So this guy is gonna say,
well, of course, I will take that money and this right
here becomes the hedge fund. The hedge fund is a collection
of other people's money and it is a person or it's
a small group of people that are managing that money
and trying to get it to grow and then the kicker being,
okay, well these people, because they're not really doing anything, yet if the hedge fund's any
good, they're still gonna be making money, well, of
course the hedge fund itself, they're gonna be making
money along the way too and the way the hedge fund
makes money is some sort of usually management fee. Hey, if you have a certain
amount of assets with us, then we're gonna charge you,
and I'm just totally making this number up, 1%, 0.5%, 2%, and I mean, if the hedge fund has billions
and billions of dollars, like I said, just from a
management fee perspective alone, that's why hedge fund managers, they got a lot of that cheddar, okay? They got all sorts of it just
from a management fee alone 'cause again, if you have $1 billion, I'm not a mathematical genius,
but somebody in the comments let me know, if you have $1 billion and you charge a 1%
management fee, what is that? Is that a million or is
that 10 million, Nate? I don't know. You let me know down in
the comments section. It's a lot of money. 10 million. Oh, 10 million, there you go. So 10 million at just one billion. Like I said, a lot of
these hedge funds are in the multiple billions, but
you can make money as a fee or then you can also make
money as a percentage, meaning, hey, you know what? We, and I'm making the
numbers up, we grew your money by 10%, you owe us 3%, you owe us 2%. So then they also have
the upside potential too. I mean, think about it,
that's where hedge funds, and people can get mad at them
because, hey, you know what? From the fee perspective,
if they're losing you money, sorry, you still owe us for our time to go and lose your money. I know, it is what it is, but
hey, like I said, hedge funds, they got a good thing going
there, but also percentage. So think about that, even
if they lose money, hey, they're still making that management fee, but if they make money,
then they're gonna be taking a percentage, but taking a percentage, if they're doing their job right, I mean, these people over there,
they're not gonna care. They're not gonna care about
the fee, they're not gonna care about the percentage 'cause
these people are seeing their money grow when
they're not doing anything or then just handing their money over to the hedge fund itself,
and that is how it works at the core is a hedge
fund is just a collection of other people's money and
the hedge fund is making money by management fees and
percentages, and like I said, maybe there's some other
little angles they take to make that extra money, but that
is how it ultimately works, and do hedge funds only
exist on Wall Street? No, they can exist anywhere,
but that's just synonymous with another, Wall Street and hedge funds, but it's just a big, large
pool of money from a bunch of different individual investors and then the dude or the small group of dudes goes out there and
makes different situations. Now, the word hedge comes
from they're always looking to potentially maybe put
on short side positions and they're trying to hedge risk. So by hedging risk, they're saying, okay, well, if this thing happens, that's bad. It won't hurt us as bad
because we have this hedge in place and that hedge. So that's where the name
comes from, but at the end of the day, it just means
a collection of money from high net worth individuals
and then they're trying to grow it and they get a fee
and a percentage to do so. So hopefully this helps. If you have any other type
of 101 questions, you know, what is a fill in the blank? Please leave those down in
the comments section below. This is always a good
idea generator for me, doing these 101 topics
and I'll try my best to get to those videos. So I would love to hear
any suggestions you have or any other questions about hedge funds. Leave those down below and
I'll do my best to answer them. So if you like these videos,
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hit that subscribe button, but yeah, now you officially
know what a hedge fund is. First off, thanks so much for
watching the entire video. Real quick, before you
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