A Spaced Time Continuum

Having ideas of varied duration diversifies a portfolio and prevents a book from going stale.

Flexibility and diversification around idea types is a a sound approach for delivering consistent returns in a long/short portfolio. Said another way, doing things one way all the time is going to leave you with periods where the market, the sector, or more importantly, your competing investor base is focused on or rewarding something different than you. There are plenty of examples. But the easy ones are best identified by looking for or listening for the phrase, “The only thing anyone cares about right now is blank”. Of late, blank has been AI. But go back a months, and blank was The Fed and rates. A few months before that, it was tariffs. The list by sector also moves around plenty. Top line matters most. Profits matter matters most. Product pipeline matters most. Until they don’t. In the moment, we fall easily into the trap of believing any of these things is highly determinative of results. And for a few weeks, we might be successful. It’s just that pesky ‘rest of the time’ that gets me…

The rest of the time, one’s ability to correctly surmise the one true thing investors care most about is a fool’s errand. Sure, maybe the earnings season has a focus or something that comes up enough to make people pay attention or overweight its value. We care more about reliability of supply chains now more than we used to, for example. But this is just one of those things that doesn’t cost much in the way of time or process to simply keep on the diligence list. Because we’re never sure what is going to matter to the masses and when that might change. We’re also less certain about timing than we’d like to admit. Thus, the case for being able to hit all the clubs in your bag – playing ideas of many different durations.