What this book covers
Part I, The Inner Game: Demystifying Short Selling
Chapter 1, The Stock Market Game, discusses a few questions: "Is the stock market an art or a science? What if it was just a game? How do you win an infinite complex random game?" This chapters sets the context of the rest of the book.
Chapter 2, 10 Classic Myths About Short Selling, dispels enduring myths about short selling. The most important question is: "do you want to retire on numbers or stories?" If the former, then short sellers are your pension's best friend.
Chapter 3, Take a Walk on the Wild Short Side, explains the arc of the long side mindset on the short side and its predictable failure. This chapter describes the three endemic challenges of the short side: market dynamics, scarcity mentality, and information asymmetry.
Part II, The Outer Game: Developing a Robust Trading Edge
Chapter 4, Long/Short Methodologies: Absolute and Relative, addresses idea generation. You will be able to consistently generate as many if not more ideas on the short side than on the long side.
Chapter 5, Regime Definition, explains several regime definition methodologies to reclassify stocks as bullish, bearish, or inconclusive.
Chapter 6, The Trading Edge is a Number, and Here is the Formula, aims to demystify the mythical, mystical, magical trading edge. Regardless of the asset class and timeframes, there are only two strategies. We explain the pros and cons of each one.
Chapter 7, Improve Your Trading Edge, outlines seven ways to improve the distribution of returns and build a robust trading edge.
Chapter 8, Position Sizing: Money is Made in the Money Management Module, proves that money is made in the money management module. We introduce a game changing approach to equity curve trading.
Chapter 9, Risk is a Number, introduces four risk metrics that unapologetically measure robustness. Short sellers are exceptional risk managers.
Part III, The Long/Short Game: Building a Long/Short Product
Chapter 10, Refining the Investment Universe, explains some common pitfalls to avoid, and investors' desires to address, in order to help distill a large population of stocks into an investable universe. This chapter paves the way to the final part of the book.
Chapter 11, The Long/Short Toolbox, dives into the four most important levers to manage a long/short portfolio. Now that we know what clients want, we look at the tools available to achieve those objectives.
Chapter 12, Signals and Execution, brings together concepts covered in previous chapters, and goes through signal processing, execution, and other vital components when constructing a long/short investment product.
Chapter 13, Portfolio Management System, looks at one of the most underrated tools in your arsenal. Now that you have added a relative short book, whatever tools you have been using so far are in dire need of a radical upgrade. This chapter goes over topics which will help when designing your own Portfolio Management System.
Appendix, Stock Screening, provides a stock screener tool that will address idea generation, the most pressing issue for market participants, and allow you to put everything you have learned into practice.