<!doctype html public "-//w3c//dtd html 4.0 transitional//en"> <html> Short sellers are pure gamblers.  And they are small in number in any market. As the following table shows, most shorts are part of an arbitrage strategy. The principle of arbitrage, the process of buying low in one environment and selling high in a different environment (time, place, derivatives, rumors, etc.), is a process that all human activities engage in, not just by hedge funds.  Getting an education in anticipation of high future income is an act of arbitrage.  Aiming for longevity in hope of a better future in also an act of arbitrage. What hedge funds do is to formalized these arbitrage opportunities into operating strategies for investors willing to take the risk for higher returns.  Hedge funds do perform, or they would go out of business. The returns scientifically compensate the risks or the  arbitrage "opportunities" cannot be found. The unfair part of hedge funds as they are current constituted in the economy is that they are by law available only to the rich ($2-5 million net asset, so call qualified investors) and the financially well connected (incestuously) who are able to get credit with extremely high leverage.  An average borrower can borrow 2 times his asset (equity), but hedge fund investors can borrow several thousand times their assets.  That is why LTCM needed to be bailed out, because if its went under, it would the public's (depositors) money that the banks lent them without the public's permission that get wiped out. Despite all the bad publicity of LTCM, hedge fund returns continue to be way above mutual funds, on an annual, medium term and long term basis. So your IRA gets 10% and hedge fund investors get 40% risking your money. Reports of the rich getting richer even during the global financial crises is due to the fact that most money making channels in the markets are opened only to the rich (in the name of protecting the poor who cannot afford to lose). Financial capitalism is not only structurally exploitative towards labor, it is not even fair to all investors. The not-so-rich get a better deal from Las Vegas. Henry C.K. Liu     <img SRC="cid:part1.3745F5B2.9F025DCA@mindspring.com" ALT="Hedge Fund Expected Volatility" height=600 width=800> Greg Nowell wrote: <blockquote TYPE=CITE>Paula has mentioned that she has discovered you can make money when the stock goes down as well as up, and that she's trading on margin.  And here's the famous Wall Street poem on selling short: He that sells what isn't his'n Buys it back Or goes to prison Which is useful to remember if your shorts don't pan out.  And remember that liability on the short position, unlike the potential losses of being long, has no theoretical limit.  -gn. -- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222 Fax 518-442-5298</blockquote> </html>