Hedge funds, as originally conceived by Mr. Alfred Jones, are one of the better examples of portfolio management based on seasonality. They have some basic characteristics that make it a great way of investing as well as a favorite of the Seasonal Investors.

Hedge funds include three basic qualities which appeal to every seasonal investor.

	Seasonality.
	Hedge Fund managers take the two sides of investing: buy undervalued stocks (those which are in their unfavorable season) while at the same time short the strong overvalued stocks (those which are in their favorable season). A portfolio manager that only goes long can not compensate for the other side of investing – go short. His position is not balanced because he fails to short the favorable side of investing to cover (hedge) the unfavorable side of investing.
	Commitment.
	Hedge Fund managers invest their own money in the fund and by so doing create a greater sense of responsibility on their part.
	Diversification.
	Hedge Fund providers establish a multi-manager approach to lower the investment risk.

Everything in the Universe is cyclical. This is a law which very much applies to events that affect the corporations. All empires, countries, institutions, corporations and individuals go through cycles throughout their lives until they eventually die. In the long run, the tendency of the Universe is to look for balance or equilibrium. That is, to take away from whoever has much or whoever is at the top of the cycle and to give to whoever has little or whoever is at the bottom of the cycle.

For instance, IBM, Apple, General Motors, Pen Central and Pan Am are good examples of how seasonality affects businesses. Some are going through one of its cycles while others have already completed many cycles and finally disappeared.

All tax systems try to follow this law by taking from him who has much and giving to him who has little. And the Federal Reserve also reallocates wealth when it creates economic booms and busts by adjusting the interest rates.

We can perceive this law of cycles in the stock prices. When the price of a stock is too high (market value is greater than book value), and the market realizes this, it will begin to sell it off. On the other hand, when the price of the stock is too low (market value is below book value), and the market realizes this, it will begin to buy it.

The wizards of the investment world such as Buffet, Templeton and Soros, are experts at benefiting from the law of cycles and always hedge to lower the volatility of their investments.