Summary
- Short portfolios can do very poorly during strong bull markets.
- A loss on the short end can severely damage a long-short portfolio.
- Long only beats a consistently long-short portfolio in the long run.
- However, employing a dynamic strategy which goes long-short during bear markets can increase returns, reduce losses and beat a Long only portfolio.
I’ve been asked several times by friends, followers and professional investors why I haven’t hedged my portfolio to lock in my 2014 returns. One suggested I buy out of the money puts on the S&P every month, another I short the futures contact or the SPY, while a few large financial institutions told me I’m way too long. From February to November 2014, I’ve had a net exposure of 89-98% with a gross exposure of 95-103%. What is obvious to me is not so with others and hence the reason for this article.
This article looks at shorting, long-short, long-only and a dynamic portfolio strategy. The returns are compared and shown over an 18-year period (1996-2013).
Shorting stocks is much more difficult than buying them. Some reasons are:
To read the entire article go to: When Shorting Maximizes Portfolio Performance
