Equity Management #10 : Example on how a market neutral portfolio is constructed.

This is for the benefit of some readers who want more information on market neutral portfolios.

Right now, I still have no idea how a retail investor can get started on this form of investing and would be really grateful if intermediate investors can give me some tips on which brokers can provide this service. My only guess is that if you are high net worth, you might be able to talk to your private banker to start doing this.

The book mentioned that the portfolio manager hires the services of a prime broker who can also act as a custodian of the stock ( No CDP involvement in such a case ).

Procedure

In this example, the investor begins with $10 Million. He sets aside $1 million as a liquidity buffer in case his short positions turn against him, so he gets to trade $9 million of stocks.

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