The Long and Short of It

Investors constantly search for great advice at a good price.

For some, that means turning to professional money managers and the fees, disclosure documents and complex strategies that are part-in-parcel of the industry.

Others find a way to go it alone… perhaps paying for a handful of carefully selected research newsletters, but skipping the standard 2/20 fees charged by most hedge fund managers.

To be frank, there’s no one-size-fits-all solution. Individual investors have varying needs, different account sizes and a wide range of risk tolerances. Some are close to retirement. Others have decades to go before planning for that stage of life.

Ultimately, whether you choose to pay for investment advice or go it alone, it’s YOUR choice to make. Yet, no matter what you decide, know this: You should be looking for investment opportunities on both sides of the market… long AND short.

Being able to profit from up markets AND down markets alike is one advantage the hedge funds have over traditional retail investors, many of whom are locked into a long-only mentality.

If you were one of the latter guys, investing between October 2007 and March 2009, I bet you wished you were invested in a hedge fund!

Here’s a look at the investment returns of the two approaches…

The investing long-only style in the S&P 500 (via SPY) is shown in blue in the chart below. Investing in professionally managed funds – via the Newedge CTA Index – is shown in red.

See larger image

As you can see, since the start of 2000 you’d have been better off investing alongside the Newedge CTA Index than simply buying the S&P 500 and hoping for the best.

Between October 2007 and March 2009, SPY dropped a full 49%.

Meanwhile, the Newedge CTA Index actually gained 15%.

Much of this success is thanks to the flexibility professional money managers have in their trading strategies. They can quickly shift stances as the market turns, adding short positions that profit from bearish price action.

While you shouldn’t judge professional money managers on their performance alone… nor their fees alone… every retail investors can take at least one page from their playbook. That is, be prepared to invest in multiple markets, long and short, as opportunities arise.

And if you haven’t noticed… we’re already taking this approach at Dent Research. Both of the portfolios I manage – Boom & Bust and Cycle 9 Alert – make plays on both sides of the market.

For instance, Boom & Bust subscribers are currently betting…

  • On a healthcare REIT (long)…
  • Against a copper producer (short)…
  • On a natural gas pipeline MLP (long)…
  • And against Canadian stocks (short)…

Best of all, each of these positions is currently showing open profits, ranging from as little as 4% to as much as 67%.

Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.

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