Thread by @goodalexander

Things I did routinely at a hedge fund I’d never do with my own money. A thread 👇

1/ Run at 4x leverage or higher. Seems self explanatory but this is common. My current leverage is 2x. I’m up mid teens so far this year so plenty of Vol.

2/ Own 1 stock and short 1 stock in the same industry. This is long/short bread and butter but you can use much lower leverage if you avoid this. If you are truly neutral an industry, why even trade it to begin with? Now I buy in industries I like and short in ones I don’t like

3/ Short stocks with market caps below $50b. Takeout risk is real, and can ruin your equity curve. You’ve got a $15m position with 80% takeout premium (yes, this happens) - you’re near your drawdown on a $250m book . Onto the next one

4/ Not lend out highly shorted stocks. This is a complex topic - some shops do this poorly. Others do it well, others pay the lending fees to GPs. In real life you have to sweep heavily borrowed stock to cash account to lend out. Can add big returns. ETFs often rake you here

5/ Avoid credit / forex. What do SEKJPY and the HY/IG Cdx spread have in common? They move with stocks, use balance sheet effectively, and won’t announce they’re making an electric vehicle overnight. Shorting stocks is only sometimes the right short beta trade

6/ Outsource my execution. Philosophical and practical point - if you don’t know what moves your stocks you don’t truly know them. Why would you trust your execution to someone who doesn’t? Why trade without intraday edge ? It’s a huge part of investing

7/ Pay the street. I get LPs love management access and sell side relationships. But I’d rather run a process that can churn faster based on press releases or based on big peer moves. The tcosts to pay the street make you less nimble and actually lose you $.

8/ only trade stocks where I’ve built a fundamental model or previewed earnings. I’m happy to trade a stock I don’t know but it obviously needs a lower risk limit. This can be quantified instead of put in a binary rule. I often have 350 positions and only know 50 well

9/ run factor neutral. I think having an explicit view on the direction of value, momentum, growth, carry etc is a great way to add unlevered returns whereas “neutralizing” these factors more often than not adds other tails by virtue of everyone doing the same thing

10/ target 12x churn but own 10% of a stock’s daily volume. Adding arbitrary portfolio churn parameters incentivizes moving risk into illiquidity. $300m with 300x annual churn is totally fine if you’re trading AAPL and TSLA. W my own $ I only target market impact

11/ Yes I miss the fancy salmon lox spreads at nice hotels. The economics and scale of big funds are humbling. But I’ve chosen to take the road less traveled and build my own style because in the end - I don’t want to wear boxing gloves to the knife fight that is trading