The study showed that shorting the worst S&P500 stocks nearly doubled the 5yr CAGR achieved by a portfolio that was previously long only the best performing S&P500 equities.
Of course the study is majorly flawed by the optimism bias (which it acknowledges). On a side note, if the name rings true, I imagine Prudent Paula probably wouldn’t ever be shorting stocks...
But connecting the two pieces sparked a question: are there simpler forms of hedging available to the individual investor that can increase a portfolio’s absolute returns rather than only defending against all possible paths & taxing the returns that you allude to at the end of your article?
Gary, thanks for your interesting piece.
I read your article & thought of this study: “Even God Would Get Fired as an Active Investor” by Wesley Gray. https://alphaarchitect.com/2016/02/even-god-would-get-fired-as-an-active-investor/
The study showed that shorting the worst S&P500 stocks nearly doubled the 5yr CAGR achieved by a portfolio that was previously long only the best performing S&P500 equities.
Of course the study is majorly flawed by the optimism bias (which it acknowledges). On a side note, if the name rings true, I imagine Prudent Paula probably wouldn’t ever be shorting stocks...
But connecting the two pieces sparked a question: are there simpler forms of hedging available to the individual investor that can increase a portfolio’s absolute returns rather than only defending against all possible paths & taxing the returns that you allude to at the end of your article?
Thanks for publishing great writing!