As someone who is new to the world of investing, I have never thought about all the ins and outs and legal rules that an investment broker must abide by. When brokerage firms sell investors on a certain mutual fund, they have a responsibility to disclose the risks that are associated with that fund. The LJM Capital Preservation and Growth Fund is in a lot of hot water right now because they failed to warn their investors of the risks associated with their investment strategy. Most investors tend to put their money into relatively safe mutual funds or stock options. Investors that are looking at the long term are looking for stocks that will remain relatively stable of the course of twenty or so years. This means they’re looking for growth to be somewhere from 2-5% on a year to year basis. They’re okay with a small growth rate because they have a very low chance of losing their money in the long run.
The LJM Preservation and Growth fund worked by essentially betting that the market would remain stable over a certain period of time. This sort of investment option is incredibly complex, and it opens up investors with the possibility of losing quite a bit of money. It is perfectly legal to bet on things like this, but funds are required to be open and honest to investors with their strategies. LJM was not honest about their tactics, and it is going to cost them big time in the long run. Earlier this year, during the first week of February, the stock market more than doubled in its volatility index, moving from 17 to 37 in terms of volatility. Since LJM P&G fund had put its money into the market remaining stable, it suffered huge losses. On February 6th, the fund dropped more than 45% in value but did not report this loss. The next day, the fund dropped even further, losing 80% of its value in just two days. People who had put millions into the fund had their investments turn to pennies in a very short amount of time. These catastrophic losses were devastating to the people that had trusted LJM P&G to handle their money responsibly over the long term.
Thankfully, all hope is not lost for the people that end up in situations like this. There are lawyers that represent people who lost money investing in the LJM Preservation and Growth Fund. LJM was deceitful in not disclosing their investment strategy to investors. They were experimenting with incredibly complex and risky tactics in order to make a quick buck. Luckily for investors, they have a legal recourse that may allow them to recover a portion of their losses. This is excellent news, and puts a new investor like me at ease. If I ever am unlucky enough to lose money by investing in a negligent hedge fund, I will definitely speak to a lawyer about my recourse in order to recover the losses.