Chapter 1
The Basics of Hedge Fund Investing
A newcomer to hedge fund investing can easily get overwhelmed by the new terminology and unique characteristics associated with this type of investing. There is a lot to know and not always a lot of time to learn it. This chapter is meant to present the basics of hedge fund investing, including defining alternative investments, understanding the characteristics and structures of hedge funds, and then comparing them to mutual funds. The chapter also provides an initial overview of some of the most common hedge fund strategies. In addition, we'll evaluate how to use monthly returns reported to investors to measure performance and how leverage, short selling, and derivatives used in hedge fund investing impact results. This chapter lays the foundation for the rest of the book. Let's get started.
