IMO, we are mixing 3 separate concepts which are in fact quite distinct and should be evaluated based on their individual strengths and weaknesses.
Global macro refers to a general class of strategies which incorporate all 4 asset classes and seek to bet for/ against them based on macroeconomic trends, although fundamentals may be incorporated as well.
Hedging refers to taking a second position to offset the first and reduce postential losses associated with it. For example, you can hedge a long equity position with a put option, a short position, a futures contract, etc.
A long/ short strategy most generally refers to a portfolio that has both long and short positions. More specifically, it can refer to a portfolio that has equal long and short position sizes. Even more specifically it can refer to long/ short pairs trading where each long position is offset by a closely related short position. These strategies are characterized by increasing degrees of "market neutrality" which supposedly permit the safe utilization of higher leverage ratios.
Saying that because one had a bad experience with derivative contract hedging long/ short strategies as a whole are bunk is like saying that because you had a bad experience with a cosmetic dentist one should avoid dentists altogether. The same goes for dismissing long/ short on the basis of macro's shortcomings, except in this case the 2 concepts have very little to do with one another at all - like saying one should avoid all dentists because one had a bad cardiologist.
Shorting does have interest costs, but with spreads/ liquidity options are far more expensive. I believe that directionally shorting is an acceptable and possibly essential tool for the value investor to ensure sufficient funds for purchases during a major market correction, unless you are planning to sit on a substantial pad of cash most of the time. However, I do not think the expected return on assets for a long/ short strategy can compete with a prudent directional strategy on the same assets. And I generally view leverage as adding risk independent of the portfolio's allocation - a view which may be oversimplified but captures the fact that pair/ spread trades tend to become overcrowded and blow up at the worst possible time. The magic of "absolute value" investing is that it provides a natural sieve for weeding out crowded trades. |
