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Collector
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The history of hedging

October 3rd, 2001, 9:35 pm

Hi,My mother language is not English so I was wondering about the origin of the word hedging in finance. For this reason I went to an antique bookstore and bought the oldest book I could find on hedging:Caldwell’s 1870 "Treatise on Hedging: History of Hedging". Published by Segners & Condit.From the introduction:"Hedging-this question is a subject highly interesting to our advancing state of civilization." ......"This question of live fences, which is commonly called Hedges, is one that will interest all classes of farmers"….." My experience teaches me that the Osage Orange Hedge can be made a substantial protection all farming inclousures."Well as expected hedging is related to protection. "Protective trading"further : "We find it recorded in the Holy Bible that hedging was used in ancient times."...."We also find that the old Latin writers speak of hedging being used for making live fence."Interestingly the book has a section with the title : "CAUSE OF THE FAILURE OF HEDGES"When I started trading derivatives about 10 years ago a senior guy told me that "Hedging is for Gardeners ". (I think it was the old big shot Salmon Brother team that first came up with this?)Well, after what happened with a lot of these big shot traders (blowing up) I would rather say"Hedging and Trading for Gardeners only"By the way I am a professional "Gardener". Not kidding. In Norway the "Gardner" title is protected by law, you need a college degree in the basic of hedging etc (I have a degree from Dømmesmone Gardening College). So that I ended up in a hedge fund should be no big surprise.I was born on a farm where my mother still use hedges to protect the farm from strong wind and deer eating her plants. The fact is that Gardeners know more about hedging than most hedge funds traders.Caldwell’s book is strongly recommended, hard to get, but my copy is possibly for sale (original, good condition, from 1870, at least old by American standards). Any bidders? The Collector
 
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reza
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The history of hedging

October 4th, 2001, 12:27 am

my copy is possibly for sale (original, good condition, from 1870, at least old by American standards). Any bidders? >>Do we also get a free autographed copy of “The Complete Guide to Options Pricing Formulas” with it? as for the origin of the word “hedging” I always assumed that it just meant protecting/ covering oneself … but English is not my first language either …
 
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Omar
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The history of hedging

October 5th, 2001, 2:51 am

When I started trading derivatives about 10 years ago a senior guy told me that "Hedging is for Gardeners". >>Well, yes, 'to hedge' is to take action to protect yourself against potential risk. The verb form is derived from the noun 'hedge' which originates in Middle English, and I expect that related words can be found in all Germanic languages. For example, in Dutch it is 'heg'. I wouldn't be surprised if the corresponding word in Norwegian is 'haug', or somethig really close .
 
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jungle
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The history of hedging

October 5th, 2001, 8:27 pm

This was in ADTrading and is from trader Oscar J. Stutz-Auburn-Duessenburg, quoted at some point in the early '60s in the "Connecticut Financial Analyst Monthly" (now defunct)."Hedging is for pussies, if you want a hedge buy a country garden." Perhaps a good thing that the thinking in Connecticut has changed...
 
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Aaron
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The history of hedging

October 5th, 2001, 9:48 pm

The noun "hedge" (a row of shrubs used as a boundary) appeared in English in the 12th century from a German root. By the 14th century it was used as an intransitive verb in a literal sense. To hedge was to trim a row of shrubs into a hedge. Surprisingly, there are no early citations for the obvious metaphorical use, to hedge a statement (to cut back on its meaning as in, "I'll love you forever, er, that is, as long as you have lots of money and look great and are nice to me and I don't see anyone better who'll have me.").Because of this lack of early citations, it's an open question whether the word came into finance from that sense, probably through the phrase "hedge a bet" meaning to cut back on the risk of a wager by making an offsetting wager, or from the sense of protection (an investor might hedge against inflation in the same way a farmer might "hedge" in the sense of planting a hedge against wandering cattle or wind damage to crops.The first clear-cut financial use dates only to 1967, in the compound form "hedge fund." While there are plenty of earlier citations, it does not seem to have the precise meaning it does today, just a general sense of protection. In these earlier uses people write things such as "you should save 10 percent of your income as a hedge against losing your job." That just means general protection, not that the value of your savings is inversely correlated to your employment status.