PC, The sad fact is, most money managers have no idea how to use options to make a position, short or long, much less risky. I would definitely use 90/10, and a thirds approach. But these funds are for traders who want to jump in for a quick profit on the downside and my approach would be too investment-oriented for this hot money. I would not short stocks without some sort of hedge, either an out of the money call (which basically turns the position into a synthetic long put) or short a similar stock, i.e. long Computer Associates, short Microsoft (that's just an example, I don't have it on).
IMHO, these folks are just trying to gather assets on which they can charge fees by doing some sort of brain dead quasi-indexing approach to short selling. The market only goes down 1/3 of the time, historically, so these types of funds are doomed over the long term. But, the managers can earn a lot of fees in the short term.
I have much more respect for the approach at funds like The Montgomery Long/Short or The Zweig Hedged Opportunity Funds or even the Prudent Bear fund. I wouldn't necessarily agree with their positions, but at least they give lip service to the concept of building a long term financial asset. Long only or short only is, IMHO, non-sensical ways to manage fund monies and a disservice to clients, though 99% of them are managed that way. The entire concept of hiring an individual or an organization with more access to information and more experience in the markets is corrupted when their hands are tied. Of course, the fact that most managers are lousy caused shareholders to ask for their funds to be closely constrained in what they could do.
MB |
