Book Image

Algorithmic Short Selling with Python

By : Laurent Bernut
Book Image

Algorithmic Short Selling with Python

By: Laurent Bernut

Overview of this book

If you are in the long/short business, learning how to sell short is not a choice. Short selling is the key to raising assets under management. This book will help you demystify and hone the short selling craft, providing Python source code to construct a robust long/short portfolio. It discusses fundamental and advanced trading concepts from the perspective of a veteran short seller. This book will take you on a journey from an idea (“buy bullish stocks, sell bearish ones”) to becoming part of the elite club of long/short hedge fund algorithmic traders. You’ll explore key concepts such as trading psychology, trading edge, regime definition, signal processing, position sizing, risk management, and asset allocation, one obstacle at a time. Along the way, you’ll will discover simple methods to consistently generate investment ideas, and consider variables that impact returns, volatility, and overall attractiveness of returns. By the end of this book, you’ll not only become familiar with some of the most sophisticated concepts in capital markets, but also have Python source code to construct a long/short product that investors are bound to find attractive.
Table of Contents (17 chapters)
14
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15
Index

Myth #3: Short sellers destroy value

"Price is what you pay, value is what you get."

– Warren Buffett

Market commentators love to put a dollar sign on the destruction of value every time share prices tank. The net worth of Mr Zuckerberg shrank by $12 billion on July 26, 2018. Since short sellers stand to profit from the drop, they are guilty of value destruction by association. For example, George Soros is often associated with the fall of the British pound in 1995. How could one man single-handedly bring down the currency of one of the wealthiest nations on earth? He bet big on the Bank of England's unsustainable stance.

At the heart of this is a confusion between intrinsic and market values. One is value, the other is valuation. Intrinsic value is the net wealth companies create through the sale of products and services. Market value is the price market participants are willing to pay. Market and intrinsic value live in parallel universes that rarely intersect. One is hard work. The other is the fabled Keynesian beauty contest. The bottom line is that shareholders do not create any more value than short sellers destroy any.