Herbalife Ltd. (HLF), Tesla Motors Inc (TSLA): Hedge Funds Are More About Playing Games Than About Investing

Trading games
The short squeeze is just one of the games hedge funds play that most investors can’t. David Einhorn has become masterful at using speaking engagements at investing conferences to tout his positions, usually resulting in a herd mentality to follow him. Others will go on CNBC or contact newspapers to spread rumors that may or may not be true. Then there’s insider trading that Steve Cohen’s SAC Capital is currently dealing with.

These aren’t games most people can play, and they highlight what a different world hedge funds live in. Most aren’t in a stock for the long-term; they simply see an opportunity they can exploit and will do so as long as it’s legal or they can avoid getting caught. That’s why following a big name can be dangerous, because by the time you know what they’re doing, they’ve already won and may be taking the opposite side of the very trade you’re making to follow them.

Long-term investing wins
The average investor can’t wage a proxy war like Carl Icahn, short a stock like Bill Ackman, or bring a company to its knees like David Einhorn, and we really shouldn’t try. Foolish investors know that long-term investing is about finding great companies and holding them for a long time.

There’s also no guarantee that playing games like big hedge-fund managers do will work. David Einhorn returned just 8.3% last year, Ackman returned 12.4%, and John Paulson’s famous gold fund is down 65% so far this year. Meanwhile, the Dow Jones Industrial Average (INDEXDJX:.DJI)‘s total return for 2012 was 8.6%, the S&P 500‘s was 14.2%, and the two are up 20.9% and 20.6%, respectively, so far this year.

The article Hedge Funds Are More About Playing Games Than About Investing originally appeared on Fool.com and is written by Travis Hoium.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors . The Motley Fool owns shares of Tesla Motors and has the following options: long January 2014 $50 calls on Herbalife.

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