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How do hedge funds justify their sky-high fees? One reason individual investors might be persuaded to part with 2% of assets annually, plus 20% of profits, is that it's hard for them to hedge on their own. Shorting shares of stock is a risky business--the potential loss is unlimited--and terms are not too good (see " Shortchanged," Dec. 11, 2006). But salvation is at hand. New tools are cropping up to make bearish stock positions much more accessible to the retail customer. Result: You can create your own hedge fund, at low cost.

The mechanism is exchange-traded funds. In the last 12 months ProShares has launched 29 ETFs that short the broad market (like the S&P 500 and Russell 2000 indexes) and its subsectors (like technology and health care). To pair against these bearish vehicles you can own either stocks and mutual funds of a conventional sort or else one of the 23 bullish ETFs offered by ProShares.





Needless to say, hedging doesn't mean eliminating risk. With any paired bet, you could lose on both sides. Either way, Sapir will do pretty well. He owns between 25% and 50% of the company, which appears to be quite profitable. It should rake in management fees of roughly $170 million this year, with a staff of only 90 people.