why does long only exist
if you have reason to believe securities will increase in value then why wouldn’t the inverse be true if you’re doing effective fundamental analysis? so why doesn’t everyone do L/S
Perhaps I'll kick off with a couple reasons, and leave the HF experts to add.
1) HFs generally have clients, and those clients (e.g. pension funds), and those clients may have certain mandates which preclude having a L/S hedge fund in their holdings mix (rightly or wrongly, but it is what it is). Demand and supply, and the ability to effectively fundraise, are real factors.
2) L/S and Long-only are different skill sets, and require a slightly different ability to manage risk - it isn't all about the fundamental analysis
Regulatory. L/S and most if not all HFs require investors to be "qualified investors" (institutional or minimum net worth, etc). Which leaves most individual investors not elegible for L/S.
Much easier to run a long-only fund. Indexes funds for instance are inherently long-only. And most stocks go up over time (due both to growing economy and also inflation) so it's far easier to make money on a long bet than on a short bet.
Also, normal non-finance people think long-only is more familiar, safer and more ethical ("Shorting is betting against a company and that's evil to be rooting for them to fail!!!")
Early retirement.
Qui rerum incidunt qui fugit iusto. Rerum doloremque odit ut non hic animi ipsam. Consequatur tempora autem possimus rerum sed temporibus. A facere quas necessitatibus.
Sit animi sint neque aliquam voluptatibus quia ut. Sunt nostrum est tempore temporibus consectetur aut atque earum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...