Do It Yourself Hedge Funds – Book Review and Giveaway!

by Ron Haynes


In spite of our faltering economy and the recent devaluing of investments on Wall Street, current estimates tally the hedge fund business at over one TRILLION dollars and the industry is expected to continue to expand. As hedge fund managers find increasingly outrageous ways to spend their huge fortunes (many are paid 20 percent of the profits and 2 percent of the assets annually), the average investor feels left out and wonders what a hedge fund is and does and how it works. Do you really need an MBA from Harvard to understand how a hedge fund works? No. Can you start one yourself? According to author Wayne P. Weddington, III, the answer is YES!

In Do-It-Yourself Hedge Funds, Weddington, a senior portfolio manager of one of the world’s top hedge funds, gives instructions on how to use hedge fund strategies to maximize your portfolio and make extra money. If you’re looking for a way to pump up your portfolio, avoid losses, or to just out-perform the majority of investors, Do-It-Yourself Hedge Funds is the book for you. Weddington reveals the complicated rules of hedging in understandable, real world examples that can help you gain an investing edge.

Though there are a few occasions where Weddington uses some in depth investing terminology, he generally explains the basics of hedge funds in layman’s terms and defines the words hedge fund investors need to know. He also outlines a step by step plan for investing in your own hedge fund, but more importantly, he shows the ways in which hedge funds can go wrong. If you’ve ever wondered how those guys make their millions (billions?), Do-It-Yourself Hedge Funds is a must read.

Chapter one deals with a lot of definitions and teaches what investable instruments are.

Chapter two, “Okay, what is a hedge fund,” was probably my favorite chapter. Here, he goes over the history of hedge funds and sums up investing strategy in three points:

  1. Have investment discipline. By sticking to a structured discipline, an investor can yield more predictable results.
  2. Use some creativity in expressing your investment views. Find the right combination of tradeable securities that reflect your own risk tolerance balanced with the rewards you personally seek.
  3. Don’t be afraid to evolve your strategy as the market changes. Too many people bite the dist by insisting on consistency at any cost. Know when to move to plan B.

A foolish consistency is the hobgoblin of little minds.
From the essay “Self-Reliance” by Ralph Waldo Emerson.

Chapter two also deals with different arbitrage methods and he reminds us that most don’t stick around for long. Once they’re discovered, they tend to self correct as others figure out what you’re doing.

Chapter three, “Why hedge funds matter,” exposes the effects that different hedging strategies have on the market. Hedge funds seek to find places where the market undervalues one security and uses that knowledge to make a boatload of money.

In chapter four, “Investing in themes,” Weddington says that there are five primary market movers in the economy:

  • The growth or decay of the Gross National Product
  • Expectations on interest rates
  • Consumer confidence
  • Short term inflation
  • Long term inflation expectations

The challenge is to determine what effect these factors will have on a security and to use your own investment creativity and knowledge to design a strategy to take advantage of how that security will react. One of his tips is to remember that “shorting” a security is a valid hedge!

Chapter five, “Finding co-relationships,” examines a strategy of linking two securities together, for example, the cost of oil and the profitability of airlines. Another might be Apple vs Palm (as one increases in value, the other decreases). Simply take a long position in one and a short position in the other.

In chapter six, Weddington shows how each industry (classified by the Global Industry Classification Standard – GICS) is affected by changes in the five primary market movers.

Chapter seven, “Data,” shows you how to find basic data on the Internet and use it, or how to get around having to use it if you want! He says,

“If you use some basic data analysis techniques, your conclusions will not be far from what the professionals recommend. I promise.”

In chapter eight, “Sizing, selling, and risk control,” we’re told that self discipline is the “single most important attribute of a successful investor.” Discipline is more important than the underlying strategy, Weddington says.

Chapter nine deals with an “Overview of hedge fund styles.”

Chapter ten, “Tales from the crypt,” was a very interesting chapter. He tells one story about a broker who had a customer that always lost money. The broker began to NOT execute the trades his customer requested and still charge the customer for the losses. The customer never knew it and the broker was pocketing the customer’s losses. Weddington says that “Brokers are not your friend,” and after reading that story, I can understand why. This chapter had a lot of personal stories but one thing I took from it was that the global markets are more vast than I can begin to imagine.

Buy or Don’t Buy

Why buy when you can WIN? I’ll be drawing to send one reader my copy of this book. If you would like to be entered in the drawing, simply email the FREE BOOK CODE listed at the bottom of my RSS or email feed.

This was a pretty advanced book (and it was dumbed down for the general public), so I would recommend picking it up at the local library. Of course, of you want to buy one, please feel free to use the Amazon link to pick it up!

About the author

Ron Haynes has written 1000 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.


If you enjoyed what you just read and would like to get FREE email updates with the freshest articles from The Wisdom Journal delivered right to your inbox, subscribe today! It's ridiculously easy and you can unsubscribe at any time. Since your email address is never sold or abused, you can subscribe with confidence, PLUS you'll get free reports/guides/eBooks, subscriber only benefits, and other perks.


{ 1 comment }

Cathy Quik

Hey Ron! I just started my blog, so I figured I’d introduce myself and say hi before jumping right into my comment…so, hi! My mom just emailed me the following, I thought it might make you laugh:

Hedge funds explained

Young Chuck moved to Texas and bought a donkey from a farmer for $100.00.
The farmer agreed to deliver the donkey the next day.
The next day he drove up and said, ‘Sorry son, but I have some bad news, the
donkey died.’
Chuck replied, ‘Well, then just give me my money back.’
The farmer said, ‘Can’t do that. I went and spent it already.’
Chuck said, ‘OK, then, just bring me the dead donkey.’
The farmer asked, ‘What ya gonna do with him?
Chuck said, ‘I’m going to raffle him off.’
The farmer said ‘You can’t raffle off a dead donkey!’
Chuck said, ‘Sure I can Watch me. I just won’t tell anybody he’s dead.’
A month later, the farmer met up with Chuck and asked, ‘What happened with
that dead donkey?’
Chuck said, ‘I raffled him off. I sold 500 tickets at two dollars apiece and made
a profit of $898.00.’
The farmer said, ‘Didn’t anyone complain?’
Chuck said, ‘Just the guy who won. So I gave him his two dollars back.’
Chuck now works for Goldman Sachs.

Previous post:

Next post: