Zero-Investment Portfolio

A zero investment portfolio is more of an academic pipe dream than it is a reality. That’s because, in the real world, it takes money to make money. But the zero investment portfolio is the hypothetical idea that you can have a portfolio that requires no equity. It’s the idea that all investments have a net value of zero, because money from one area (say you have $100 from short selling some stockaroos) is used to purchase the same amount ($100 in this case) of stock from somewhere else.

In its most common form, it’s buying and shorting equal amounts of securities, so that, hypothetically, you don’t need any additional input. But things like SEC rules, commission fees, and using proceeds as collateral for loans...all make this more folly than funsies in real life.

Don’t get us wrong...people still do strategies like this that work for them, but it’s not really a zero investment portfolio with all these real-life-hoops-of-fire investors must jump through. Welcome to the danger zone.