[DcifrThs]

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I would stay very far away from these investments.

First, stocks have a positive expectation (derived from the risk premium). Shorting an asset with a positive expectation is -EV.

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this is very poor reasoning.



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I know his reasoning can't be correct, but I don't see why. Can you explain further?

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If you randomly pick a stock it should so a long term expected return of 10% or so. Obviously shorting a stock at random has a -EV. There are those who will tell us they are better than random at selecting stocks to short, even better than the 10% vig they give up plus increased taxes (short term versus long term). I have seen no proof that this is possible except by those that are results oriented (i.e., I made 5 profitable short trades in the last 30 days).

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do you think that at any point in time it is +EV to fundamentally be short a broad based stock index?

if no then think about all the long/short equity hedge funds. do you think they are all (the successful ones) just lucky?

and from a more basic perspective, do you think that they could generate the interest they have from very picky institutional investors if it couldn't be +EV to short a stock or a broad based stock index?

there is a lot more logical proof i can give you, but since i don't have access to fund's return streams (anymore) i can't provide statistical evidence to back the logic.

Barron