What is your take on having long and short positions in your portfolio?

[BillSimmons]

What is your take on having long and short positions in your portfolio?

Say 80% long and 20% short.

And using those as core positions, so if the market drops, reduce your short positions, add to the long and if the market goes up add to your short and reduce your long.

Does that make any sense or is it just counter productive?

TIA

 

[amit1986]

Why add more long positions if the market is dropping? Reducing short positions is smart in that it locks in small profits, but by adding more to your long positions, you've effectively further reduced your short positions. So, if the market continues to drop, then you're now looking at a greater loss, which could mitigate your profits from the shorts.

 

[forker]

Go with the flow. You're not going to make any more money or reduce your risk by balancing your exposure in terms on longs vs shorts

 

[Martinghoul]

If you believe that the mkts are mean-reverting, this is by all means a sensible strategy that is practiced by a lot of investors.

 

[LiveTradingZone]

I can only trade what I know. If I think the market is in an uptrend, I am all long. If I think the market is in a downtrend, I am all short. Of course with stops and targets along the way. I can't be 80% long 20% short......have to trade technically and by my own convictions. But that is just me

 

[TheBramble]

I can only trade what I know. If I think the market is in an uptrend, I am all long. If I think the market is in a downtrend, I am all short. Of course with stops and targets along the way. I can't be 80% long 20% short......have to trade technically and by my own convictions. But that is just me

I think that's what the OP was asking.

If you have one of your markets in a clear uptrend and another in a clear downtrend, would you be following (in your case) your technical signals and your convictions and be long the up and short the down? From your reponse, I imagined that was what you were saying, but then you say you couldn't be 80:20 L:S.

How could that be if you're following your technicals and technicals are telling you to do precsiely that?

 

[LiveTradingZone]

I think that's what the OP was asking.

If you have one of your markets in a clear uptrend and another in a clear downtrend, would you be following (in your case) your technical signals and your convictions and be long the up and short the down? From your reponse, I imagined that was what you were saying, but then you say you couldn't be 80:20 L:S.

How could that be if you're following your technicals and technicals are telling you to do precsiely that?

Maybe I confused the hell out of myself and others in that response, but just for example.... If technicals are telling me to go long the ES, but short the NQ, I will do just that.

To my understanding what I thought he was saying is that people just go long 80% and short 20% regardless of the technicals, they just place 20% of their portfolio short for "protection".

 

[anley]

And using those as core positions, so if the market drops, reduce your short positions, add to the long and if the market goes up add to your short and reduce your long.

That would work great in theory, but most won't have a chance of doing it successfully because this is what will happen -

As the market moves moves lower they'll get scared and sell out longs and add to shorts - RIGHT AT THE WRONG TIME.

Then the market will rally so they'll reduce shorts and add to longs - RIGHT AT THE WRONG TIME.

Add all of that together and the portfolio will be one big mess of a loser.

 

[SanMiguel]

Go with the flow. You're not going to make any more money or reduce your risk by balancing your exposure in terms on longs vs shorts

That's why it's a major hedge fund strategy, yeah? They don;t do it to make any money.

 

[anley]

That's why it's a major hedge fund strategy, yeah? They don;t do it to make any money.

Well, the main strategy of most hedge funds is to use their investors cash to pay themselves first so the actual trtading strategy they use is somewhat of a red herring but the more complex and serious it sounds the better it is for raising investor money.

Plus, look at the returns of most h.funds, hardly worth getting excited about unless you work for one then the reutnrs are normally very good.

 

[SanMiguel]

Maybe I confused the hell out of myself and others in that response, but just for example.... If technicals are telling me to go long the ES, but short the NQ, I will do just that.

To my understanding what I thought he was saying is that people just go long 80% and short 20% regardless of the technicals, they just place 20% of their portfolio short for "protection".

Not much protection though.
If you are 80% ,long but the market moves down 40%, how much does your 20 short make you?

The basis of this strategy is to be market neutral, pick 10 stocks you go long of and pick 10 stocks you expect to underperform and go short. Generally the hedge funds expect the long side of the portfolio to outperform the short side.

You also have volatility to consider and then you also have similar sector stocks that might be cheap or expensive relative to each other:
http://www.magnum.com/hedgefunds/marketneutral.asp

You could also go long 1 stock in a secotr with a higher dividend and short another stock in the sector with a lower dividend pocketing the dividend difference / carry. You can do the same with bond spreads, etc etc