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November 30, 2004

A hedge fund for sports gamblers

Dallas Mavericks owner Mark Cuban is fed up with the what he thinks is the roulette nature of the stock market. He has concluded that stock investing is not much different than gambling in Vegas, so for those who like to wager, he has come up with a better idea -- a hedge fund that bets on sporting events.

"The goal of the fund would be to make money and to prove that the current equity markets are more Ponzi scheme than efficient markets," Mr. Cuban said in his blog post announcing the hedge fund. "There is far more hypocrisy in equity markets than there is in non-traditional markets and that impacts those markets' ability to be fair."

"I've decided to start a new hedge fund. However, this hedge fund won't invest in stocks or bonds. It's going to be a fund that only places bets ? a gambling hedge fund."

Mr. Cuban reasons that stock investing is generally unfair and that most gamblers have better information about their local sports team than investors do about a company. Inasmuch as the media reports on every hangnail suffered by a member of a local sports teams, Mr. Cuban contends that the media releases much more and better information than publicly traded companies.

Mr. Cuban has not yet provided many details about the venture, such as when the fund will be up and running, which sports the fund will bet on or what it will be called. He does say he will not pick the bets and that professionals will run the fund.

While a hedge fund run by professional gamblers may sound a bit far-fetched, the hedge fund industry has a long history of engaging in rather unusual trading strategies. Until recently, hedge funds were lightly regulated on the theory that people participating in them were sophisticated investors and able to take care of themselves. But in recent years, there has been an substantial increase in the number of hedge funds and the SEC has adopted more stringent rules. Accordingly, if Mr. Cuban's fund raises more than $30 million in assets and has at least 15 investors, the advisers of the fund will have to register with the SEC by February 2006. This means that the advisers would have to disclose to the SEC their identities, the amount of money that they are managing, and the identiay of the fund's compliance officer. Mr. Cuban will probably set up his fund so that it is open only to accredited investors, which normally have at least $1 million in assets.

Mr. Cuban concludes his blog post with his real purpose in starting the fund:

"By showing that gambling in the traditional sense is less of a gamble than gambling in the stock market, traditional markets will hopefully have to change to the benefit of investors."

My sense is that this fund is going to be a bit more sophisticated -- although no more competitive -- than the traditional Kirkendall Family Bowl Game Pool that takes place each holiday season. ;^)

Posted by Tom at November 30, 2004 5:58 AM |

Comments

I think he's right about the stock market, at least insofar as it matters to relatively small investors over the relatively short term. You can make money in relatively conservative investments, but it takes a lot of time and patience.

But you're much wiser on this matter than I--what do you think?

Posted by: TP at November 30, 2004 10:43 AM

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