1. By Laurent Bernut, CEO, Alpha Secure Capital
Mastering the Lost Art of Short Selling & Intelligent System Trading  Development
By Laurent Bernut, CEO, Alpha Secure Capital

2. AGENDA IS STOCK PICKING OVERRATED ? THE FORGOTTEN FORMULA:
SIGNAL MODULE: IS ENTRY or EXIT MORE IMPORTANT
MONEY IS MADE IN THE MONEY MANAGEMENT MODULE
“LA CONDITION HUMAINE”: OUR BRAINS WORK AGAINST US
WHY IS THE SHORT BOOK KEY TO INCREASING AUM ?
WHAT DO INVESTORS WANT ? FOLLOW THE MONEY
HOW TO MAKE MONEY SELL SHORT ?

3. IS STOCK PICKING OVERRATED ?

4. 80% OF MANAGERS UNDERPERFORM THEIR BENCHMARK

5. Gain Expectancy = Win% * AVG Win% - Loss% * |AVG Loss%|
WHY?
Markets dominated by institutions: average hard to beat
Not Focusing on Gain Expectancy
Gain Expectancy = Win% * AVG Win% - Loss% * |AVG Loss%|
Signal module: Entry & Exit
Money is made in the money management module
“La Condition Humaine”

6. WHAT’S MORE IMPORTANT – ENTRY VS. EXIT?

7. IN EXITS, ONLY TWO TYPES OF STRATEGIES: TREND FOLLOWING & MEAN REVERSION
Long
Short
CLASSIC TREND FOLLOWING STRATEGY P&L DISTRIBUTION
Classic Trend Following P&L Distribution
Losses
Profits
Long Right Tail = Capital Appreciation
Low Win Rate
[NB: THESE ARE OLD NOTES}
Let’s look at how we generate profits on both sides of the book.
Positive gain expectancy
-- As you can see, the peak of profits for both Longs and Shorts is to the RIGHT of the peak of Losses, so both sides of the book are making money.
-- Many people make money on the Longs and do the Shorts to get the 2 and 20. Our short book is a profit center. Why? Our strategy has been designed from the SHORT SIDE.
Symmetrical distribution of profits for longs and shorts
-- This makes sense because we’ve designed our strategy from the SHORT SIDE.
-- Eliminates need for top down risk management.
CLASSIC MEAN REVERSION STRATEGY P&L DISTRIBUTION
High Win Rate = Compounding
Devastating Left Tail

8. CHANGE YOUR EXITS, TILT YOUR GAIN EXPECTANCY
Long
Short
Losses
Profits
No Left Tail
Compounding
Capital Appreciation
Capital Efficiency
ALPHA SECURE STRATEGY P&L DISTRIBUTION
Positive Gain Expectancy: (Win % x AVG Win%) > ABS(Loss % x AVG Loss%)
Capital efficiency = Compounding * Capital Appreciation
Symmetry: Identical Distribution of Longs/Shorts P&L
[NB: THESE ARE OLD NOTES}
Let’s look at how we generate profits on both sides of the book.
Positive gain expectancy
-- As you can see, the peak of profits for both Longs and Shorts is to the RIGHT of the peak of Losses, so both sides of the book are making money.
-- Many people make money on the Longs and do the Shorts to get the 2 and 20. Our short book is a profit center. Why? Our strategy has been designed from the SHORT SIDE.
Symmetrical distribution of profits for longs and shorts
-- This makes sense because we’ve designed our strategy from the SHORT SIDE.
-- Eliminates need for top down risk management.

9. MONEY IS MADE IN THE MONEY MANAGEMENT MODULE
Gain Expectancy = Win% * AVG Win% - Loss% * |AVG Loss%|

10. 2 WAYS TO IMPROVE GAIN EXPECTANCY
Losses
Profits
Game of 2 Halves: simple way to cut losers and increase winners
Calculate AVG Win, divide by 2
Halve bets on losers below -1/2 AVG Win
Re-allocate proceeds to winners and/or fresh ideas
Game of 2 Thirds: Reduce free loaders
Add 1/3 of turnover to all entry dates
Halve positions in 3rd quartile performance on anniversary date

11. 3 BENEFITS OF THOSE GAMES
GAIN EXPECTANCY IMPROVES
Cut losers, increase winners
GOOD STEWARDSHIP:
Maintain conviction, but deal with problems
Easy to explain to investors, peers
EMOTIONAL CAPITAL PRESERVATION
Fund capacity in when inertia sets in
Train the brain to switch from outcome to process orientation

12. WHERE IS THE SPEED LIMIT?
Engine: Signal Module
Transmission: Money Management Module
Driver: “La Condition Humaine”
From Subconscious beliefs to unconscious habits

13. OUR BRAIN WORKS AGAINST US
Rationalization Machines: Corpus Callosum
Risk Appetite: Nucleus Accumbens/Anterior Cingula
Future Self: rostral Anterior Cingulate Cortex
Source: Risk Appetite: NAcc/Acc Kuhnen Knutson, 2006, Rationalization machines: corpus callossum M. Gazzaniga 1962, Self deception: D. Goleman 1985, Future Self: rACC, Hershfield, 2006, Habits: basal ganglia, Wood 2002

14. GREAT TRADERS ARE NOT SMARTER,
THEY HAVE SMARTER TRADING HABITS

15. KUBLER-ROSS

16. THANK YOU! CONTACT US TO GET A FREE COPY OF
“GAIN EXPECTANCY DIAGNOSTIC TOOL” AT:

17. ALPHA SECURE