Ideas on Hedging

The NYT article below indicates one known complexity of Hedge Funds. The same person who bets on the problems of a publicly traded company, Herbalife, leads a campaign to make it fail. Another way to put the problem is: If you know that your investment can only go up in value, that knowledge can make it go down. If I know the wining ticket number for tomorrow's lottery, that knowledge can change the future, and the number could lose.

We do not know the future, only the past.

In his interesting book, The Improbability Principle, David J. Hand, explains how almost impossible events, do occur, sometimes.

Then one can ask: Why are there Hedge Funds?

Even if this problem is more complicated, one could learn from the study of simpler systems, like turbulent flow. After all, the purpose of calculus is to predict. Given initial conditions, one could know where the Moon, the Earth, and the Sun, are going to be tomorrow. The problem does not have an exact solution, but Henri Poincare studied it successfully. This is the so-called, "Three Body Problem".

The study of hedging is hard, but not impossible.