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How to Invest Like the Super-Rich

Stocks in this article: GURU AAPL MSFT GOOG ALFA JPM AIG

By Dave Goodboy

NEW YORK ( StreetAuthority) -- What do Larry Ellison, Sean Combs, Ted Turner, Bono and Saudi Prince Alwaleed have in common with thousands of other very wealthy people? It certainly isn't their style of dress, philosophy or even how they made their money.

In fact, these folks couldn't be more different in terms of just about anything. The one common thread between these billionaires and many other members of the wealthy class is that they either are or have invested in hedge funds.

Hedge funds are the common denominator that separates how the wealthy invest compared to the rest of us. In fact, the majority of investors are prohibited by law to invest in hedge funds. Totally and completely unfair, I understand, but these wealth-building tools of the uber-rich are also very risky. The government sees fit to protect undercapitalized, unsophisticated investors from the risks of hedge funds, but at the same time prevents the average investor from benefiting from the massive rewards available in this investment arena.

Until now, that is. But more on that in a moment.

So what exactly is a hedge fund? Briefly stated, a hedge fund is a lightly-regulated investment partnership that can use any strategy or invest in anything you can possibly think of. There are hedge funds that invest in real estate, art, collectibles, lawsuits and even water rights. It's a broad universe of potential investments, but the majority of hedge funds invest in equities, bonds, derivatives and currencies.

Hedge funds have an advantage since they have the capital to hire the best investment-picking talent, computer power, knowledge and information on Earth.

Unlike mutual funds, hedge funds can usually make investments based on whatever the manager thinks is best at the time. Hedge funds are not permitted to advertise, so the only way an investor can discover funds, other than the obvious big names, is by way of introduction. So not only do you need to be personally introduced to most of the top performing funds, the manager can decide whether to accept your investment.

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