How would you transition a long-only book into L/S?
I'm currently running a long-only portfolio in my pa, but I'd like to gradually transition it into a long/short book.
For some context, I've been stock picking for a while and I'd say I'm reasonably experienced on the long side, but I've never actually shorted stocks before. I'm about to start university, and my long-term goal is to build a career in fundamental L/S equities, so I figured the best way to learn is to start applying that framework to my own portfolio. ( Ik, if i manage to get a job at a L/S fund I won't need to worry about portfolio construction for the first few years but I'm curious to learn more)
What I'm struggling with is how to think about portfolio construction during that transition.
Should I start by looking at the key risks and exposures of my existing longs and find companies that I believe will relatively underperform to offset those risks? Or is it better to treat the long and short books independently and only pair names when there's a compelling relative value opportunity?
The other thing I'm wondering about is idea generation on the short side. My intuition is that it's much easier to generate high-quality long ideas than short ideas. If that's true, how do you build a diversified short book without lowering your standards or forcing trades? Do most investors end up with fewer, higher-conviction shorts and let the long book drive most of the alpha, or is that the wrong way to think about it?
I'd really appreciate any advice from people with experience running or investing in fundamental L/S strategies.
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