Long/Short Fund

Long/Short is sorta the base case for the manner in which hedge funds are structured. Their initial premise was that they could make money whether or not the market went up or down. Their investing alpha was supposed to be so good…so much better than the general market understood general prices, that it would know how to scale just how bad a bad company was versus how good a good company was…and how that badness and goodness was reflected in their stocks.

So a long/short fund might be long KO and DIS and GE, because they like a return to “classic Coke” companies, and they might be short CSCO, MSFT, and GOOG because they think tech just trades at too high a multiple. And it might be long with leverage...like $300 million long, and then short $150 million, so that it’s 2:1 long to short exposure on their little hedge fund grid.

Myriad combinations have evolved over time, all revolving around the notion that, by being both long and short the market, these types of funds make money “always.” And they always do. Until they don’t.