Nicholas Vardy’s

For Global Stock Investor Subscribers Only

SPECIAL REPORT

Hedge Fund
Secrets Revealed:
A Simple Four-Step
Technique to Manage Your
Money Like a Hedge Fund

$39.95
 IMPORTANT NOTE: This special report is for information and educational purposes only,
based on current data as of October 2008. Do not buy or sell any investments until you have
read the current issue of Global Stock Investor, the current Hotline, or an e-mail update from
Nicholas Vardy.

Copyright © 2008, by Nicholas Vardy. All rights reserved.

Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money Like a Hedge Fund

No quotes or copying permitted without written consent.

Published by:
Eagle Publishing, Inc.
One Massachusetts Ave. NW
Washington, DC 20001
1-888-211-4766
Email: editors@GlobalStockInvestor.com
Website: www.GlobalStockInvestor.com
Hedge Fund Secrets Revealed:
A Simple Four-Step Technique
to Manage Your Money
Like a Hedge Fund
“In real estate, the key is location, location, location. With money

— Bruce Kovner, Founder of Caxton Corporation,

management, the key is risk control, risk control, risk control.”

one of the most successful hedge funds of all time

In this special report, I will share with you secrets of how to maximize your profits as a
subscriber to Global Stock Investor.

Today’s global investment is as challenging as it’s ever been.

But imagine if you had access to a technique that would allow you to gain complete con-
trol over your trading and investing. While your friends are glued to CNBC, entranced by the
relentless onslaught of the latest negative news from Wall Street, picture yourself standing
above the fray — completely in control of your financial destiny. Unlike other shell-shocked
investors, you can feel secure in the knowledge that your hard-earned dollars never will suffer
from the kind of financial meltdown you’d suffer by following mainstream investment advice.

The technique I’m about to share with you provided the basis for a system that I developed
to manage a top-performing hedge fund during the post dotcom bust in 2001 and 2002. The
result? While other hedge funds struggled as they dropped 30%, 40% even 50% in a grueling
bear market, by implementing what I am about to teach you, we preserved our capital and were
uniquely well-positioned for the inevitable bull market that followed. This technique also has
served as the basis for my popular seminar “Hedge Fund Secrets Revealed: How to Become
Your Own Hedge Fund Manager.” I regularly present the seminar at the Money Shows
(www.moneyshow.com) held periodically throughout the year.

In order to benefit from the system in this special report, here’s what you need to do:
Please turn page...

1 • Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money Like a Hedge Fund
 Realize that what you are about to learn represents a fundamentally different way of look-
ing at investments. Don’t expect your broker or financial planner to know about or to under-
stand this approach. So please keep an open mind.

Understand that this is about managing your risk — and not about promising pie-in-the-sky
results. The very best of the top hedge fund managers have a tough time in bear markets. Like
life, markets have their seasons. Once you have these principals down, the upside will take care
of itself.

Try implementing the techniques that I outline in this Special Report on my Global Stock
Investor for 90 days. I’m sure that it’ll not only change your thinking about how you invest in
stocks forever, but you’ll also be a lot richer for it.

So let’s get started with a question:

What is the ONE (and probably the ONLY) question you ask when you look at an invest-
ment recommendation?

You have three choices:

1) What Do I Buy? (Entry)

2) When Do I Sell? (Exit)
3) How Much Do I Buy? (Position Sizing)

If you’re like 99%+ of investors, you want to know the “hot stock tip” — in other words:
“What to buy.”

I’m about to reveal to you something that even some of the VERY TOP hedge fund man-
agers in the world don’t realize:

What you BUY is a LOT less important than when to SELL. And when to SELL is less
important than HOW MUCH you buy.

According to trading coach Van Tharp, the relative importance of these three decisions is
as follows:

Entry 10%
Exit 30%
Position Sizing 60%

Let’s look at each of these in order of importance:

I. Entry — “Not the ‘Holy Grail’”

Although we haven’t actually met, here’s something I already know about you. . .

2 • Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money Like a Hedge Fund
 The reason you subscribed to Global Stock Investor was that you wanted the latest, great-
est, and most profitable investment ideas out there. You wanted an investment advisory service
that offered you the top stock tips. You wanted the “Holy Grail” — and you were hoping that
I’d be able to provide it.

And you’ve come to the right place. Based in the heart of London’s hedge fund communi-
ty, I analyze U.S. and foreign stocks, commodities, currencies, and recommend those that I
think are the top investment opportunities — no matter where they are on the planet. As a sub-
scriber to Global Stock Investor, you’ll learn about investment opportunities you simply haven’t
heard of anywhere else.

But I’ll let you in on a secret. And it’s one that you already probably know — but this is
probably the first time you’ve had it pointed out to you:

As important and as valuable as each individual stock pick is, it can be pretty darn near
useless unless you have a disciplined framework for investing. A scattershot approach is not the
way to achieve long-term investment success. In fact, trading psychologists have shown that if
you don’t have a disciplined plan for managing your stock picks, you can actually lose money
even if you invest in nothing but the world’s top-performing stocks.

How is this possible?

Just think for a minute... Have you ever bought a stock which turned out to be a big win-
ner? Then it suddenly started to drop. But you held on, hoping that it would bounce, and
resume its upward trend? Then what happened? The stock collapsed and you still held on —
rationalizing that it was “too late to sell.”

Well, if you’ve had this happen to you, you already know that unless you have a plan in
place to manage each and every one of your stock picks, there are many, many things that can
keep you from locking in big gains.

I can send you 10 consecutive winners in Global Stock Investor. But unless you know what
you’re doing, you can lose money on each and every one of them.

But as a Global Stock Investor subscriber, I don’t want that to happen to you. And that’s
the purpose of this Special Report.

II. Exit “Don’t Run the Red Light . . .”

With each Global Stock Investor pick, I also provide you with a “stop” or exit price. You
ignore these stop prices at your own peril.

You’ll be surprised to learn that those stop prices are three times as important as your
picks — if you know how to use them.

Please turn page...

3 • Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money Like a Hedge Fund
 And sticking to your stop will put you ahead of EVERY SINGLE mutual fund manager out
there. . . BY LAW. . .

And it would have put you FAR AHEAD of 95% of investors on the entire planet during
the past 12 months.

Think of it this way. . .

Imagine that your neighbor has a teenage son who is a reckless driver. . .

As testosterone charged as he is, he regularly speeds through red lights. . .

But because he’s never been in an accident, he thinks he can get away with anything. . .

Then one day, he speeds into an intersection, gets hit by truck and WHAM!

Result?

A totaled car. . . and (if he’s lucky) a seriously chastened teenager…

So think of ignoring your stops as a lot like going through a red light. . .

. . . You can ignore your stops. . . and you may even get away with it a few times. . . but at
some point you ARE going to get hit by the equivalent of a Mack truck.

As long as you keep investing and trading, it’s not a question of IF, but WHEN.

So why will following this single rule make you better than the best mutual fund manager
out there?

As a former mutual fund manager myself, I can tell you that your mutual fund manager is
actually breaking the law if he is not fully invested in the stock markets — even if the stock
market is headed straight down for the next 10 years!

You, on the other hand, don’t have your hands tied like this. You can SELL anytime you
want.

By determining your stop price at the same time you buy your stock, you KNOW your
worst case scenario EVEN BEFORE YOU GET IN THE MARKET.

It’s really common sense…

But as Voltaire said:

“Common sense is not so common”…

4 • Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money Like a Hedge Fund
 III. Position Sizing: The Secret that Accounts
for 60% of Your Trading Success
Ask any hedge fund manager who has been around for more than a few years, about the
most important thing in his trading… and he will tell you it is position or bet size…

If he gives you a different answer, don’t even THINK about giving him your money. He
and his investors are bankrupt already. He just doesn’t know it yet…

Let me illustrate the importance of bet size with this example…

It’s early September 2008, and let’s say that you’ve decided to call the bottom of the melt-
down in U.S. financial stocks. You’ve just heard your favorite analyst on CNBC talk about how
financial stocks are due for a bounce. In fact, you even heard that hedge fund guru George
Soros has placed a large bet on Lehman Brothers’ recovery. You’ve decided it’s time to bet on a
big turnaround. It’s as close to a “sure thing” as you’ve seen.

You have $50,000 to invest, and you decide that this is a once in a lifetime opportunity to
hit it big. You decide to “bet the farm.”

So you buy $50,000 worth of Lehman Brothers stock…

At the time you placed your bet, one of two things can happen:

One, your bet works out, and you make five times your money. You think you are a
genius — and calculate that you only need to do this six more times to become a billionaire. . .
(Do the math yourself. . . )

Or two, the minute you buy the stock, Lehman Brothers starts plummeting on rumors of an
imminent collapse. And because you bet all your money on Lehman Brothers, you spend your
days glued to your computer watching every tick in Lehman’s stock price. Every drop in
Lehman’s price is PAINFUL… and is reducing your net worth considerably…

After a weekend wracked with worry, on Monday morning, Sept. 15, you hear the news
that Lehman Brothers went bankrupt.

You’ve lost everything. You made a novice’s mistake and bet much too big on one idea.
That idea didn’t work out, and you are literally blown out of the game.

Contrast this high stress image of you with your new “enlightened” self once you under-
stand the risk-management technique I’m about to give you below.

Let’s say you’re willing to place a bet that Lehman Brothers is going to make it. . .

But now that you understand the importance of exits and position sizing, the scenario is
very different.
Please turn page...

5 • Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money Like a Hedge Fund
 You know that as smart as you know you are, you are not infallible.

And even if you do consider yourself infallible, remember that there is always the possibil-
ity of some external event beyond your control — say, a terrorist attack, an earthquake in
California, or other “Black Swan” event — that can cause Lehman Brothers and the market to
drop unexpectedly.

So you calculate your position size so that that the WORST that could happen is that you
lose 1% of your portfolio. You place your stop at the same time that you buy your stock.

So how would you feel that fateful Monday morning?

You may be a bit disappointed — but, frankly, given that you knew your worst-case sce-
nario ahead of time, you had psychologically accepted that this could happen. You actually feel
good about yourself for having stuck to your discipline.

In fact, I can tell you exactly how that Monday morning felt. . . Because I actually placed
that bet on Lehman Brothers myself!

So what was my reaction to Lehman’s demise? “It’s not that big of a deal!”

The lesson: Be sure that you NEVER bet too big on any idea — no matter how great it
seems…

And I’ll let you in on another secret: Sophisticated hedge funds screw this up all the time!

In fact, the next time you hear about a hedge fund blowing up, you can be 100% sure that
it was due to a hedge fund manager getting too cocky and taking too big of a position in his
fund — or, not sticking to his stops.

But the very best hedge fund managers think differently. George Soros lost hundreds of
millions on this bet on Lehman Brothers. But his loss still was manageable — given the size of
his portfolio. As Soros says:

“I’m very concerned about the need to survive, and not to take risks that could actually
destroy me.”

Or as Larry Hite, top trader interviewed in Jack Schwager’s “Market Wizards” put it:

“Never risk more than 1% of your total equity in any one trade. By risking 1%, I am
indifferent to any individual trade. Keeping your risk small and constant is absolutely critical.”

Here’s my personal rule of thumb: I never risked more than 0.5% (that’s ½ of 1%) on any
one idea for any of the hedge funds that I traded. If the trade went in my direction, I’d just add
to it… But those are details I can’t get into in this Special Report…

6 • Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money Like a Hedge Fund
 IV. A Simple Four-Step Technique That Can Save
You Millions Over Your Investment Lifetime
So here it is: A simple four-step technique to manage your risk on any single Global Stock
Investor (or ANY) investment idea.

STEP 1. Establish the size of your trading portfolio.

What’s the total amount of money you are willing to play with in your short-term trading
portfolio?

For the purposes of this example, I will assume it’s $100,000.

STEP 2. Decide how much you want to risk on the Global Stock Investor investment idea.

I will sometimes give you some guidance on this. I will often say whether the idea is “high
risk” (say, the highly volatile Turkish ETF) or “low risk” (like a very steady currency ETF).

For whatever reason, you may be more comfortable with some ideas than others. Or maybe
you have some special insight into that portfolio pick that gives you an “extra edge.” Or maybe the
overall market has entered a bullish phase, and you are willing to risk more on your investments.

But ultimately, how much you are willing to risk on any idea is up to you.

For the purposes of illustration, let’s say you are willing to risk 1% or $1,000 (out of your
$100,000 portfolio) on the current investment idea.

STEP 3. Calculate your risk per share.

If you’re like most people, you think that if you buy a share for $100, you are risking the
entire $100.

But from now on, I want you to think about “risk” in a very different way.

Let’s say you buy a stock at $100 and you place your “Good ‘til cancelled” or ‘GTC’ stop
price at $85. You do both of these at the same time that you buy the stock with your online broker.

So here is what you are REALLY risking:

$100 entry price – $85 stop price = $15 dollars risked per share

Here’s what is most important to understand:

Once you place your stop, you are only risking $15 per share. (That assumes you “don’t
run the red light” and you stick to your stops.)

Please turn page...

7 • Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money Like a Hedge Fund
 By the way, you will always find a stop price for every pick you get with Global Stock Investor.

You should know that I put a lot of thought into each stop price. Although I can’t go into
details here, each stop price is tailored particularly to each pick’s “personality.”

That means I’ll give more volatile picks more room to move than relatively stable picks.
Sometimes, a stop will be as far away as 30% from the entry price. Others will be as near as 7% or 8%.

STEP 4. Calculate how many shares you should buy.

This is a crucial step.

Say you’ve decided to risk 1% of your investment capital on this month’s Global Stock
Investor idea.

Based on the difference between the stock price and the exit price, you are risking $15 per share.

Here’s the important part:

Take the 1% of your portfolio (or $1,000) that you are risking on this week’s Global Stock
Investor idea, and divide it by the $15 per share you are risking on each share.

This will give you the number of shares you should buy.

Here’s the formula:

Number of shares = $1000 /$15 per share = 66.66 or 67 shares (rounded up).

That means that you can buy 67 shares of this pick, for a total of $6,700.

Note that this many shares amounts to a 6.7% position in your portfolio. .. which is proba-
bly a lot bigger than you expected…

BUT… Because you have placed a stop of $85 on each share, you are limiting your
TOTAL RISK on this one idea to $1,000, or 1%, of your portfolio.

Let Me Land the Plane Here …

I strongly recommend that you use this approach to calculate your risk and position size for
each and every one of your Global Stock Investor picks. (And if I were you, I’d use it for every
single one of your other investments, as well.)

So every time you get your monthly issue of Global Stock Investor:

Decide how much you are willing to risk on that investment idea (I recommend you start small!).

8 • Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money Like a Hedge Fund
 Subtract the recommended stop price from the share price to calculate how much you are
risking per share.

Divide the total amount you are risking by the amount you are risking per share.

And voila! — You have the number of shares that you should buy, based on the amount
you are willing to risk.

I like to tell my seminar audiences to view this technique like a set of training wheels on a
bicycle. Use the formula a few times until you get the hang of it. Once you really get it, you’ll
realize that you’ll be able to “ride the bike” as “fast” or as “slowly” as you want.

If you are feeling skittish about the market, you can “dial back” the risk you are taking to,
say, $500 per trade or even $100. Or if you feel particularly bullish about the market or a cer-
tain investment idea, you can decide to risk $2,000.

The point is to focus on the “risk” that you are taking on each position. But within that,
you can vary your position size to suit your own risk appetite.

The point is: It’s all up to you…

You… and not the market… are in control…

And by adding up the total number of dollars you are risking on any set of trades in your
portfolio, you always know your “worst case scenario” — that is, how much your entire portfo-
lio is always at risk.

So try this technique and see how it works for you. Once you do it three or four times, it’ll
become second nature.

You’ll also likely run into issues that I haven’t been able to address in this short special
report — but ones that I address in my two-hour “Hedge Fund Secrets Revealed” seminar at the
Money Shows. At these seminars, I provide you with some very specific tools to manage your
investments on a portfolio level.

If you are unable to attend the Money Show seminars, visit my website,
www.HedgeFundBootCamp.com for more information. Once you’re on my mailing list,
you’ll receive some more specific tips on how to “manage your money like a hedge fund.”

Here’s to investing like a hedge fund!

Nicholas A. Vardy, CFA

Editor, Global Stock Investor
Please turn page...

9 • Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money Like a Hedge Fund
 Congratulations on joining the elite group of global investors who are part of Nicholas Vardy’s Global
A Special Invitation for GLOBAL STOCK INVESTOR Subscribers
Stock Investor. I trust that you’ll find it an exciting and highly profitable experience.
As you already know, Global Stock Investor is for your mid- to long-term investments.
Today, I’d like to introduce you to my exclusive weekly trading service. . . one that is proving to be a
remarkable success.
Global Bull Market Alert is a fast-paced trading service that identifies short-term momentum plays —
those stocks that we expect to generate fast profits during a trading period of 4 to 10 weeks.
Since Global Bull Market Alert started in October 2005, we’ve had 59 double-digit winners and 17
triple-digit winners. . . including a 528% gain in 92 days on a Chinese play!
Frankly, the two products are not only complementary. . . they are both essential sources for any true
global investor looking to take their profits through the roof.
As a member to Global Bull Market Alert, you’ll have access to the best short-term trading opportu-
nities in the world’s hottest bull markets that can dramatically increase your profits.
Your membership includes —
 About 30-40 recommendations per year, in the form of weekly e-mail trading alerts
 Recommendations include both stocks and options (when applicable)
 A portfolio of no more than 8 picks
 Specific recommendations with pre-set strict stop-losses to show you when to exit/take profits
 Password protected access to subscriber-only website with the latest recommendations and alerts
Right now we have several red-hot plays in our portfolio that could add up to some of the quickest
profits you’ve ever made. To find out what they are, sign up for your risk-free, 60-day trial of Global
Bull Market Alert today.

Become a Charter Member today and save $255 off the regular price!
For Fastest Service, Call 1-888-219-4751

 Fill out this order form and send it in today

 YES, start my risk-free trial subscription to Nicholas Vardy’s Global Bull Market Alert for the term Iʼve checked below:

CHECK ONE: Card No. ________________________ Exp. Date__________
 Great Deal! 1 year for $1250 — $995 (I save 20% off the Signature __________________________________________
regular price)
Name ______________________________________________

 Best Deal! 2 years for $2500 — $1,695 (I save 30% off the
regular price)
 Convenient Quartely Billing: Rather than pay all up front,
please charge my credit card $275 quarterly until I notify
Address ____________________________________________
City ______________________ State________ Zip________
Phone
____________________________________________

you otherwise. No checks for this option, please. E-Mail ____________________________________________

This is for a  New order  Renewal order

(e-mail address is required to receive this service)

PAYMENT OPTIONS (DC residents add 5.75% sales tax):

Mail this order form to:

 Check enclosed (payable to Global Bull Market Alert) Eagle Publishing

Global Bull Market Alert

Or One Massachusetts Avenue, NW

Washington, DC 20001
 Please charge my     Or Call: 1-888-219-4751 GSIRPA
 Eagle Financial Publications • One Mass. Ave., NW • Washington, DC 20001
1-800-211-4774 • www.GlobalStockInvestor.com
GSI015