Ground Floor: When friends asked me whether it was worth getting involved in the Aer Lingus initial public offer (IPO) I decided that honesty was the best policy and told them that I did not know. It is one of those tricky things - the airline industry is notoriously difficult, but careful initial pricing will mean the opportunity of an upward move after the shares start trading.
Easing oil prices and buoyant equity markets are positive influences too.
However, most people I talked to were looking to flip their shares, which is not really the best reason for getting involved in anything as a private investor.
Private investors, more than anyone in the market, like to make a quick buck. As a result, the IPO is oversubscribed and punters are hoping that their faith will be repaid by a tidy profit in October.
Institutional investors are always sniffy about their private counterparts who, they feel, do not really have the skills for successful participation in the markets. And indeed, if you want to do well as opposed to crossing your fingers and hoping for the best, you do have to put in a bit of spade work when selecting candidates for your portfolio.
Many private investors (and I do not rule myself out of this entirely!) often use their heart and not their head when looking at stock picks. But we are not really alone in that. Despite what they say and despite the sophisticated trading models used by many of the institutions, they too can get things spectacularly wrong. And when they do, they are getting it wrong with your money.
The latest scare story from the world of professional trading is from another hedge fund. Amaranth is a US hedge fund and has (well, had) about $9 billion (€7.09 billion) under management. The investments came from wealthy individuals and various funds managed by big brokers such as Goldman and Morgan Stanley. The brokers, in addition to being investors, also handled trades by Amaranth.
The hedge fund lost $6 billion this month in gas trading, betting that prices in natural gas would go up. Energy trading accounted for about half of the capital of the company's funds.
Unfortunately - despite all of the knowledge and expertise on the Amaranth team - they managed to get that call spectacularly wrong. Natural gas prices declined by about 23 per cent in September that, in turn, caused the value of Amaranth's funds to be down by about 65 per cent when it finally opted to sell its entire energy portfolio at a significant discount in order to avoid the company going into liquidation.
Amaranth's founder, Nicholas Maounis, apologised by saying that the people at the hedge fund "feel bad about losing our money. We feel even worse about losing your money".
He did point out that Amaranth had made more than $2 billion in trading profits from the energy sector so far this year but, as every trader knows, you are only as good as your last deal.
And its last deal had gone spectacularly wrong because liquidity - the lifeblood of any market - began to dry up and they were not able to unwind their positions adequately.
The problem for hedge funds in this situation is that it becomes very difficult to borrow to pay for the margin calls that are inevitable in a losing position. And, of course, as soon as there is a whiff you might have problems, you are a pariah as far as the lenders are concerned.
Somewhat unsurprisingly, Maounis has now informed investors that Amaranth will no longer be active in the energy market although he claimed that what had happened was a "highly improbable" event.
Perhaps seeing the market move away from you is highly improbable in the minds of hedge fund traders who are supremely confident in their abilities and have so much clout that they themselves can influence it so strongly, but most energy traders know that the market can be prone to bouts of illiquidity and rapidly fluctuating prices - although this often happens when the market becomes aware of one trader holding a large, and suddenly offside, position!
When the small private investor is faced with seeing most of his or her nest egg wiped out in a bad equity trade, the options are limited. Given that investors in hedge funds are usually wealthy (or at least started out that way) they do not sit back. Many of Amaranth's investors are now thinking about suing the company. They are incensed that they only heard about the losses on September 18th, which was the last day in the current quarter on which they could redeem their holdings.
None of this is good news for the hedge fund business - both reviled and praised in equal measure for its highly leveraged trading that is supposed to make significant returns in good conditions and bad.
Because world markets have been awash with cash, the value of capital under management by hedge funds has more than doubled in just five years. Much of that has come from other institutional investors who themselves manage funds for private investors and for other institutions such as pension funds.
In the case of Amaranth, the states of New Jersey and Pennsylvania had exposure to the company but fund managers for both states were quick to point out that their holdings were a small part of their overall portfolios and that diversification of their investments meant that Amaranth's bad fortune would not impact too significantly on them.
And that's the key, of course. Whether it's in the high-octane world of hedge funds, or the potentially even higher-octane world of the airline industry, diversification is everything. And making a quick buck has risks as well as rewards.
