Why Equity Long/Short?

I am Bill Feeley. I am 66 years old and have been a successful Investment Banker, Investor and Trader for over 44 years. For the past 39 months, I have run Barometer Trading as an Equity Long/Short Strategy that has generated returns that have annualized at over 18% more than a recognized Index of Hedge Fund Equity Long/Short funds during the same period.

Equity Long/Short has underperformed many other fund strategies during this period. So why would I choose this strategy for Barometer Trading? Quite simply, I HATE LOSING MONEY! After an extended Bull Market run with massive outperformance of the “Magnificent Seven”, it is easy for investors to forget that Bear Markets happen! They also can get stuck in recency bias and buy the dip mentalities that can be dangerous to their capital. Not only do Bear Markets happen, but:

Sometimes they come with nasty drawdowns; and
Sometimes they last for a very long time!

During the next Bear Market that goes down 50% from its start, I will hope and expect to earn a positive return. I do not wish to be trapped in a Long Only Strategy or attempt solely to hide in Cash or Bonds during such a Bear Market where I would have to make 100% to get level after suffering a 50% drawdown. Nor would I wish to suffer the ravages of needing years to recover from a Bear Market or suffering a lost decade. You probably know the math:

Required Gain = [1 / (1-Percentage loss)] – 1 .

= [1 / (1 – 0.50)] -1 = 100%. No thank you for my hard-earned capital! A more detailed analysis pf the risks associated with a Bear Market, “Market Declines And The Problem Of Time”, was recently Authored by Lance Roberts via RealInvestmentAdvice.com and it was republished by Zerohedge on September 20, 2024. It is worth a read and here is the link:

https://www.zerohedge.com/personal-finance/market-declines-and-problem-time