Long/Short Version of the Model

I get some of the same questions regularly- so when I do the site redesign I am going to include tabs for FAQs as well as timing updates. Those are the two main features people email me for.

Anything else you would like to see added to World Beta?

I was taking a look at an old post from about a year and a half ago that addressed the question of shorting instead of going to cash in the timing model. Normally, I recommend individual investors not short for a few reasons. 1 – most are not familiar with shorting. 2 – individuals do not get short rebates. 3 – the historical returns are lower than long/flat and buy and hold.

For the long short model the return is reduced with increases in volatility and drawdown vs. long/flat. Also not surprising – the correlation to buy and hold drops to 0 (or negative) for the L/S version.

However, if you include 2008, the disparity in performance is so wide between long/short and buy and hold (namely due to everything puking) , that buy and hold and the long short version now have similar return numbers.

If I get around to it I will include a long short section in my 2009 update to the timing paper in January. . .