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Investors and market watchers have long been captivated by star traders—those who have the most spectacular returns on a consistent basis for a number of years. These include the likes of mutual fund manager Peter Lynch or investment manager Warren Buffett.

In most recent years, hedge fund managers have become the superstar investors. They have more flexibility than the typical mutual fund manager. Because many are not regulated by the Securities and Exchange Commission (SEC), they can use more leverage, short markets to a greater extent, and explore for opportunities around the world in many different markets using a variety of investment vehicles. While this strategy has its advantages, it can also be dangerous. We have seen a number of giants stumble in the past few years.

However, a new breed of hedge fund manager has evolved. Some are relatively young—in their 30s, such as Lee Ainslie, Ken Griffin, or Daniel Och; or 40s, such as Raj Rajaratnam, Brian Stark, David Tepper, or Bruce Wilcox. Others are in their 50s and have been around a bit longer, such as Leon Cooperman, John Henry, Mark Kingdon, Bruce Kovner, Paul Singer, and S. Donald Sussman. While their trading strategies may differ, this new breed is characterized not only by generating superior returns on a consistent basis and in different market environments but also by managing the downside risk and reducing volatility. They have been able to embrace change and profit from it rather than fight it. During their relatively long track records, they have gone through rocky periods. But they persevered and survived.

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