Hedge Funds Crying Over Spilled Milk

Any hedge fund that is crying about getting their tail kicked from February is crying over spilled milk of their own doing. Why?

The market was very oversold as the S&P 500 and other equity indexes came into their low on February 11th. A bounce was imminent and yet the majority of funds failed to adjust their beta on the short side, especially in the extremely oversold energy and material names.

Bulls and bears survive. Yet pigs get slaughtered. So many a pig got slaughtered. The ironic thing is that the slaughter failed to happen at the September low. Only  at the February low. Hmm… I wonder why?

On February 24th, we wrote here that the shorts had it good cementing gains of 15% in our work after hitting a peak of 20% some 10 days before. Adjustments could have been made but the “macro” traders felt this rally was just another ill fated rally.

From my perspective, the inability to make shifts at inflexion points is an ongoing problem that is due to spending too much time on stock selection and macro analysis and not enough time on risk management. You would think that those with a long short bent would try to identify the variables that happen time again when the “long/short tsunami” takes hold. I can tell you flat out they do not.

Remember the long/short tsunami is what happens when shorts rise more than longs. We will write on the long/short tsunami soon but for now will leave you with the thought that crying over spilled milk is no way to go through life.