Hedge funds are playing with fire as they all cram into the same stocks — and their behavior could make the next market crash even worse

— the last place an investor wants to be is piled into a crowded position. To the extent that hedge funds are still loaded up on the same popular names, the next downturn could be made worse.

With all of that established, it's worth noting that doubling down on proven winners can be a lucrative strategy when everything is going swimmingly in the market. After all, hedge funds wouldn't be cramming into those stocks with abandon if they weren't offering strong returns. Still, it would seem to be a prudent strategy for investors insistent upon staying invested in crowded stocks to seek some downside hedges. At the very least, they could help offset the damage once the tables turn on those high-density trades.

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