People sometimes balk at the term “alternative investments” because to them, it can sound a little scary. “Alternatives” seems to bring to mind something bizarre or untested. We like to explain to such people that, in fact, managed futures has a long track record and hundreds of billions in assets under management. Futures trading is risky and it’s definitely not for everyone, but there are programs that have been at this for decades – not exactly some flash in the pan, and certainly no “get rich quick” scheme. Unfortunately, we know we’re fighting an uphill battle when we see articles like this one from Reuters (hat tip to Barry Ritholtz for bringing it to our attention) about hedge funds in search of new alternative investment opportunities. Apparently, some are turning to the “exotic” in search of returns… and we can only shake our heads:

One hedge fund investor at the conference said he had achieved double-digit returns from investing in a range of more esoteric funds, such as those involved in electricity arbitrage, where a manager tries to profit from fluctuating prices by buying and selling electricity, and those trading the volatility of option prices…

He also has money in funds shorting stocks of Chinese companies caught up in fraud scandals, and in funds involved in lending securities to borrowers for a fee.

If the idea of shorting scandal-ridden Chinese companies doesn’t make you flinch, you’ll be glad to know that this is not even the worst example of exotic alternatives out there. Head on over to CNBC and check out their coverage of alternative investments (if you dare). You’ll find tips for getting in on the diamond trade, learn the best time to invest in wine, or learn about the opportunities for investing in racing horses. The scope of the list is pretty breathtaking – frankly, we’re a little surprised that the blackjack tables at Vegas didn’t make the cut. This is just the sort of thing that makes some people raise an eyebrow at the term “alternatives.” There’s even a poll:

If you could choose only one alternative investment, which of the following would it be?

• Art
• Automobiles
• Coins
• Horses
• Wine

A poll about alternative investing, and these are the choices? The stupid… it burns…

“Alternatives” is a pretty broad umbrella, covering just about everything that isn’t named stocks, bonds, or cash. But that’s no excuse for the financial media emphasizing novelty investments rather than well-regulated and time-tested options. Big money hedge funds or proprietary trading desks might be able to get away with exotic investments, but unless you’re named Goldman Sachs, you probably want to shy away from credit default swaps, barge leasing, and cranberry bog harvesting. Alternative investing isn’t right for everyone, but it’s a shame when investors have a negative opinion of alternatives because of the poor coverage out there.