The Essence of Short-Long Strategies: Why Do Long-Term Investors Choose Long Positions?

There are two different approaches in the world of investing. Long is a strategy that involves buying assets believing in their growth, while short involves borrowing assets to sell them, expecting to buy them back at a lower price in the future. At first glance, both may seem equal, but a deeper look into their mathematical properties and market realities reveals that long is a more advantageous strategy in the long run.

Asset Growth Asymmetry: Differences in Profit and Loss Structures of Long and Short

The most fundamental difference between long and short strategies lies in their mathematical characteristics. In a long strategy, assets can rise by 200%, 500%, or even 1000%, with no upper limit on profits. Conversely, losses are limited to a maximum of 100% (in cases where the asset becomes worthless).

Short strategies have an entirely opposite structure. The maximum profit is capped at 100% (if the asset drops to zero), but if the price suddenly rises by 200% or 500%, short traders must buy back at a higher price than they sold, leading to potentially unlimited losses. They must be prepared for losses of 200%, 500%, or even 1000% of their initial investment.

This asymmetry is a key factor that causes long and short strategies to perform very differently over the long term.

Time Works in Your Favor: The Market’s Long-Term Growth Trend

Historically, stock markets tend to grow steadily over the long term. For example, the S&P 500 index has experienced growth of thousands of percent over the past decades. This growth is supported by fundamental factors such as economic development, inflation, and increasing corporate profits.

Gaining profits from short strategies requires more than just predicting a decline. You need to accurately time the downturn. Betting against the market’s long-term upward trend is statistically disadvantageous. A long strategy aligns with the market’s growth trend, increasing the likelihood that profits will grow as time passes.

Invisible Risks: The Multi-Layered Dangers of Short Selling

Risks associated with short strategies are not limited to potential unlimited losses. Opening a short position requires borrowing the asset and paying ongoing borrowing fees. Additionally, if the price surges sharply, you may face a margin call (additional collateral requirement), risking forced liquidation of your position unexpectedly.

These layered costs and risks further diminish the profit opportunities for short traders. When accounting for borrowing costs, trading fees, and margin call risks, the actual profit potential is significantly reduced from the theoretical maximum of 100%.

The Stability of Long Strategies: Why They Are Recommended

The reason why long strategies continue to be favored by long-term investors is clear. Losses are capped at 100%, making risk management relatively straightforward. Meanwhile, the unlimited profit potential allows assets to grow alongside market expansion, always keeping the door open for gains.

Comparing long and short, short strategies have limited upside and potentially enormous losses. From the perspective of the fundamental investment principle of “risk-reward ratio,” this is an inefficient approach. Conversely, long strategies limit risk while maintaining unlimited profit potential, thanks to their mathematically advantageous structure.

From a long-term perspective, choosing a long strategy is obvious. Riding the market’s growth trend and leveraging time makes for a sustainable and solid investment approach.