Fads.

When it comes to trends, Wall Street rivals the fashion industry. Over the years, such investment fads as real estate investment trusts, tech stocks, home shopping, e-commerce, theme restaurants or alternative energy sources have boomed and busted, usually with the investing public the poorer for the experience.

Now, hedge funds are hot, but the buzz is probably off-tune again, said Jeffrey Bronchick, chief investment officer with money shop Reed Cornier Birdwell Investment Management in West Los Angeles. "I can always tell when an investment strategy isn't going to work. The people I call my 'telltale clients' always. Go into the wrong fads. They loaded up on tech stocks. Now they are pouring money into hedge funds," Bronchick said.

The definition of a hedge fund can vary from shop to shop, but in general a "hedgie" is a portfolio manager willing to go long or short on the market or individual stocks, and perhaps leverage a bit while doing so. Buying distressed equity or bonds is okay, and so is arbitraging. Some hedge funds invest based on past historical relationships, such as the spread between long-term U.S. Treasuries and junk bonds. If the spread gets wider than normal, then junk bonds are considered.

But hedge funds are expensive, charging management fees as much as 2 percent of assets every year -- and 20 percent of all profits, subject to various hurdles. By contrast, an investor in an index stock mirroring the S&P 500 can pay about 10 basis points of assets in fees (one-tenth of one percent), while well-heeled investors can set up private, "separate accounts" with managers for 60 basis points or less.

By leveraging, hedge funds can increase returns on statistically reliable bets. But they have to be right very often, or face bruising losses. And history doesn't always repeat itself -- as managers of the Long Term Capital Management Fund found out in 1998, when that fund collapsed after heavy leveraging. Interest rates didn't move the way they were "supposed" to in that case, and paying back borrowed money required federal intervention.

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. His new book is "The Pied Pipers of Wall Street: How Analysts Sell You Down the River," published by Bloomberg Press.