60 Minutes News
Program Highlights Hedge Fund Lawsuit Filed By Biovail – What Is Selling
Short and What Does it Mean?
The CBS News show 60 Minutes had a segment on hedge funds and
specifically a dispute and lawsuit filed by the Canadian Company Biovail
against one of the world’s largest hedge funds, SAC. According to
Lesley Stahl, hedge funds have little government oversight and operate
In this specific case the lawsuit alleges SAC influenced the analysis of
Biovail stock. They allege SAC influenced the stock-analysis firm
Camelback (The Arizona company has since changed their name to
Gradient). Camelback gave the biotech firm an “F” rating, hinting at
accounting irregularities among other things. This caused Biovail stock
Usually when most people buy stock, they are hoping the price goes up.
One of the strategies hedge funds use, called selling short, is contrary
to this philosophy. Selling short involves the sale of a security that
one may not own, but will buy in anticipation of making a profit by
paying for it after its price has fallen.
A seller of securities could profit by selling stock or commodity future
by selling short. A hedge fund or seller hopes to buy the stocks at a
later time and of course at a lower price. For instance, I could offer
to sell you stock at a later time. You hope the price goes up and I
hope the price goes down.
Hedge funds take both long and short term positions, use arbitrage, buy
and sell undervalued securities, trade options or bonds. They invest in
almost any opportunity in any market. There are 14 basic investment
strategies hedge funds use in an attempt to preserve capital and deliver
positive returns. Selling short is just one of these strategies. The
goal is to do this under all market conditions.
The hedge fund industry, on the whole, is valued at about $1 trillion.
The industry is growing at about 20% per year with approximately 8350
active hedge funds. Various hedge funds use different strategies to
achieve their return, and not all hedge funds hedge against market
downturns. Of course hedge funds vary in risk and profitability.
By Dan Wilson
Books on Investing
Keywords and misspelling:
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