Disgusted With Hedge Funds? Fight Back

The other fund that's in the media a lot this week is Braddock Financial. For years these guys were putting up enormous returns with no down months, sometimes exceeding 20% or more in a month. I tried to interview them, but they turned me down because they didn't want to give up their "secrets."

I couldn't believe it with both of these funds. No down months, enormous returns every year? How could it happen? Well, this is the problem with hedge funds. It can't happen.

Hedge funds succeed now because of the charisma and salesmanship of their founders. They are illiquid, non-transparent vehicles where you send your money, and you'd better pray to your god that ever see that money again, no matter what the returns are in between.

And all along, mammoth fees are sucked out of the marked-up pool of exotic securities -- everything from wildly illiquid, regulated "carbon emissions futures" profiled in The New York Times today to exotic baskets of derivatives of derivatives, profiled glowingly in today's Wall Street Journal.

A friend of mine asked me a few months ago what fund of hedge funds he should put his money into. I told him he might as well flush it down the toilet. He laughed because he knows I run a fund of funds, but I wasn't kidding.

Here's what you should really do if you are desperate to put your money into a fund of hedge funds. I'm biased, but this is why I set up Stockpickr.com.