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Pair trading Buffett style

Ben Graham did it in 1920. He did pair trading. He was right 4 out of 5, but the last one would kill him. We shorted the market to some degree. We would borrow stocks from universities. We were early in this. We wouldn’t short a stock because it was unattractive but as a general market short [hedge]. I would borrow from the Treasurer of Columbia [University], “which ones do you want”, “just give me all of them”. It provoked some odd looks when I told the universities I wanted to short all of their stocks.

It was not a big deal. We might have made a little money on it in the 1960s, but it is not something we do these days. If you have good long ideas on businesses that are undervalued, it is not necessary to short. 130/30 [simultaneously holding a 130% exposure to a long portfolio; and a 30% exposure to a short portfolio] is being marketed today. Many will sell you the idea of the day. No great statistical merit.

Charlie Munger: We made our money by being long wonderful businesses, not by using a long-short strategy.

Source: Berkshire Hathaway Annual Meeting
Time: 2008

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