Long/Short 1.0: the absolute method
"'But the Emperor has nothing at all on!', said a little child.
'Listen to the voice of innocence!', exclaimed his father."
– Arthur Andersen
The absolute method makes intuitive sense: buy stocks that go up, short stocks that go down. There is a one-to-one relationship between data coming from various providers, price charts on the screen, and what goes into the portfolio. Everybody speaks the same language. Investors, market commentators, and various other market participants talk about the same price and generally valuation levels. Shorting stocks that go down in absolute value generates cash that can be used to buy additional stocks on the long side and increase leverage.
There is only one small problem: the product does not always do what it says on the tin. Let's keep it civil: the absolute method has been a crass utter failure from the get-go and the following sections...
