Banks and Institutions. Meet The 800 Pound Gorillas.Hedge funds, institutional investors and investment firms. When this group jumps in the pool, you know you’re going to get splashed. It’s important to know who these guys are and how they operate. After all, it’s because of their immense buying power that stocks shoot up or down. Even though they’ve got the tools, brains, technology and contacts to move markets, they’re not infallible. There have been several financial institutions including hedge funds whose screw-ups have roiled the financial markets. The point of this section is to examine the role institutions play in the stock market and try to learn something. How do they invest? What’s their strategy? Why do they move markets? And last but not least: How do they make so much damn money!
Investment bankers perform a variety of functions. Not just hostile takeovers and poison pills. They assist companies in raising money by issuing and selling their securities; and provide services such as M&A and corporate finance. But the most profitable areas come from trading activities. These range from the sale of simple common stock to the funkiest basket of complex derivatives the world has ever seen.
Hedge funds actively manage a portfolio of investments. I use ‘investments’ in its broadest term because basically, anything goes. Long, short, forwards, swaps, futures, FX, commodities, options. If I had to give hedge funds a tagline it would be: We make money no matter what the heck the market is doing. However history has shown, they can lose money no matter what the heck the market is doing too. Hedge funds are a trillion dollar industry and growing by about 20% per year. There's about 8,000 active hedge funds. Half of them are in Connecticut. Institutional investors include pension funds, money managers, insurance companies and mutual funds. They attempt to manage investments on their behalf or outside companies. Their goal in life is to beat the S&P so their clients won't say: "Why the hell am I paying you all these fees when I just could have stuck my money in a mutual fund." Let’s take a look at an industry that manufactures money. Its one of America’s best exports. Guys Who Move Stock PricesHedge Funds. The Rules Are, There Are No Rules.
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