The Pain Trade Is All About Down-Capture

Rich and ever-changing is the language of investing. Terms new to me include

The Pain Trade. That's how hedge fund managers refer to their work this year, Financial Times reports. Through November the average hedge fund is down more than 4 percent for the year.

Up-capture. Making money.

Down-capture. Losing money.

Too much down-capture means investors are falling out of love with hedge funds, according to Reuters.

That love affair may always have been more about sizzle than steak. By one reckoning, Dealbook notes, hedge funds averaged an annual return of 6 percent from 1980 to 2008. That's a mere 40 basis points more than Treasury bonds returned. Over the same period, stocks as measured by the S&P 500 did much better, averaging well over 9 percent per annum.

Don't count hedge funds out just yet. Some do achieve awesome returns, and picking winners may be easier than we realized. See A Bunch of Academics Think They've Figured Out How To Tell If A Hedge Fund Will Outperform The Market.