what are people thinking, page-27

re: hedging george

perhaps my $1m shares example was a little too cryptic for you.

perhaps you could show, using my example, how a 'hedged' share portfolio of $1m is better off than an unhedged one over a 5 or 10 year period.

I can assure you that the cost of purchasing xjo put options every quarter will destroy any profits the shareholder MAY incur.

Hedging over the long term does not increase profitability. It simply 'smoothes out' the cashflow for the company, so that one factor such as a spiking oil price doesnt have a sudden and fatal effect.

In the short term, if timed perfectly, hedging can be invaluable. If you were to buy XJO puts to protect your $1m portfolio on Sept 12 2001 for example, after the first days fall, you would have suffered a greatly reduced loss from then on. But had you bought puts every quarter regardless, you would have lost money.

QAN does not hedge the oil price so that it is completely immune from the rising oil cost (as some here are suggesting)....it cannot possibly avoid this cost forever. When the current hedge expires, it will cost a fortune to roll it over......

Hedging is a valid strategy for any business where rough conditions are forecast, but it is not a cheap solution. The 'smoothing' effect comes at a price, being lower long term profitability.

oh and a 'hedge' fund has jack 5hit to do with actual hedging of risk within the fund. Its a 'hedge' from the investors perspective because a hedge fund often profits from market falls or employs unusual strategies, and having some exposure to such a fund may 'hedge' their traditional buy & hold portfolio.