I don't trade when I'm bullish

I received today an e-mail from my broker, well one of them as I have accounts in 8 different banks, brokers, wealth managers, private banks and strip clubs. The e-mail reads :

"Good afternoon, I’m an Account Manager here at the stringfellow (OK, I changed the name) and wanted to get in touch regarding your Spreadbetting account. I noticed you have not been active on it for a couple of months – will you be looking to use it going forward?"

After I replied, I though that my answer may seem to him a bit odd as I replied something like "Actually I've been bullish for the last couple of months and that's the reason why I've not traded with you". It doesn't matter that he doesn't understand : he's just a broker... but let me explain more this point to You here, my Fellow Traders who know how to make money by taking a real position !

All comes from my global trading strategy and in this case, it concerns two of its main principles that reflect my beliefs on investment :

- Firstly, I believe that in the long run, you can't make money being short in the markets. Of course, I personally know guys who made millions with short positions, I even lost a silly bet with the most bearish guy I've ever met, a propr trader, just one week before the 9-11-2001... and I heard he did well last year... But the thing is a short position is not natural, in the investment game, you are paid a premium, a dividend, to take a risk. When you short, you loose that dividend or you're the guy who pays that premium and to some extent, you need to be doubly right to make money... In the game of capitalism, you need to own things to become rich and to own things is to be long.

- Secondly, and my second point is widely discussed, I tend to believe that there's Alpha. It means I believe that you can "beat the market" or by picking stocks you can outperform the stock indices. The performance an asset manager has over the benchmark index is measured by what's called "Alpha". I refer here to the battle opposing the Efficiency against the Non Efficiency theories, those who think that the market is efficient argue that you're better off entering in a tracker or a future or spreadbetting deal on an index rather than trying to pick assets or investing in a managed fund. To me, the historical performance of legend investors and traders : Soros, Buffet, Templeton, ICahn etc strongly argue in favour of the inefficient market thesis...
Now that's not because I believe that you can beat the indices that I think that I can beat the indices. I won't compare myself to the legend investors above, I won't compare myself even to the star asset managers of the real money accounts (the "long only" funds) : not only the asset management firms hire armies of traders, technical analysts, chart analysts, quants, ... and have access to the best research (and the best tables) in town... but their veteran asset managers have as well access to information mmh let's say that not every one has... Just imagine yourself as a manager of a company having a lunch with a guy who will potentially own 50% of your company... My point is that provided you find asset managers veteran enough to have this kind of edge working with a reputable asset management firm and provided that their alpha seems higher than the management fee they charge to you... It's difficult to do better than them at the game of stocks picking and personally I even don't try...

Now let's go back to my own strategy and see how those two principles affect my trading. Actually back to 2008, I was inspired enough to have no position on equities when Lehman failed, I cut the (minimal) position I had in early 2008 and advised all my relatives to do so at that time, what they did, pure luck I guess, a couple of weeks before Kerviel. Now I decided to get an exposure back on it (see the first principle above) in 2009 applying an old good GBP-cost-averaging technique (it means purchase the same amount in GBP every months). My bet was that the bottom would be reached one day during the next couple of years (sounds obvious no?) and that I would then have time to build a consequent stake (see again the first principle above).

Now what I have bought (and keep buying, every month, same amount): actually I'm investing in some "long only" equity funds from a funds manager that I believe maximizes the alpha (for a "reasonable" fee) thanks to the following process: for each fund, the asset manager, who keeps working for a reputable UK management firm at the same time, is assessed every 6 months both internally and independently on one main criteria : has the fund beaten the benchmark or not? No? thanks you but you're fired and another manager is found. Yes? OK for this time, see you in 6 months, good luck. Finally, I've chosen funds managed by the same guy for decades :)

Got it? OK, OK, but where comes the spreadbetting thing in all that? Here we are. The problem with the asset managers is they only have the incentive to beat their benchmark, which is generally a stock index. So if the stock index falls, provided the funds falls less, then the Asset Manager is safe and happy... So I use my spread betting account to short Equity indices when I'm bearish in the short/medium term, to hedge what we call the "systemic risk" or "beta" the Asset Managers don't care about. So you got it : I only use my spread betting account to short the stock indices and that explains why when I'm bullish I don't trade on it...

I'll just note that as I'm always long equity though the funds, when I'm short the indices my net position is flat... well, almost flat... actually I'm long alpha. Now the question that remains is : "is there alpha?"

Finally to the broker's question "will you be looking to use it going forward?", my reply here is "Of course, I will use it when the time will come to get the hell out !!!" and this could be soon...